Is anyone trying this type of financing

Is anyone trying this type of financing

Investor · Nashville, IL · Member since 2016 · 79 posts · 51 votes
I have been on BP for a little while now and I have not come across anyone financing the way I have or maybe I just haven't recognized it. To start I bought my current home I live in for 110k. I'm a DIYer and fixed it up myself for 25k. It appraised at 160k. At this point I was not interested in rental property. Fast-forward about two years and a house on my street became available. I contacted my lender for my loan on my current residence. Mind you this is a private small bank. I asked him what kind of financing we could do on this house. He told me I could bridge the equity on my personal residence to use as a down payment on rental property. I was hesitant at first but we jumped in. Since then we have bought 6 SFR ranging in price from 40k-55k over three years. Each deal is 4.5% amortized over 20 years with a balloon payment due at 5 years that will roll over into a new 5 year rate and so on until it's paid off. Since we started that rate has stayed steady at 4.5%. The bank has also let me roll the closing costs into the loan as well so I have bought 6 houses with only about 500-1000 out of pocket for simple repairs and the such. My 6 houses currently cash flow 3900 per month. I self manage and I am in a town of 3200 people. The rental market is crazy here for such a small town. My vacancy rate over 3 years is almost 0. I have only had turnover in 2 of the 6 houses. I think this is because most of the other landlords don't fix things when they break and are just bad land lords. It seems with every house I have I get 2-3 qualified applicants within 2-3 days. My banker says he can continue to do these deals and even expand into 4 unit multi families as long as the equity is there. Is anyone else out there doing this kind of financing? I know there are risks with this but I want feedback if I should continue to pursue this method or is there something I'm missing. I would love any comments you all would like to leave.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
9y

Whenever you are working non-conforming loans (ie conforming to freddie/fannie buyback rules) you can just about do anything; if you find local banks willing to hold the notes in-house you have a whole lot of flexibility. That is a good rate for what you are doing so the bank must have a lot of confidence in what you've done so far, and you must have good financials. 

Every private bank (and I'd really say every bank, but anyway) exists for one reason: to make money. Banks make money by loaning money. Real estate is a good game for banks because it's backed by (theoretically) hard assets that are unlikely to become worthless, unlike a car, business venture, etc. Small banks that are well-capitalized and uninterested in running lists of mortgages in and out can do this kind of thing if they are so inclined, so it really looks like you've found a nice slot! 

Hint: Keep the name of the bank to yourself :)  It's like sharing your fishing hole. 

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    9y

    @Devin Haertling  we have done some loans like this with two different banks. We used some of the equity in our home and some equity in our commercial building in order to create a line of credit with the bank. With that line of credit we are able to purchase more properties. We did the same thing with some properties that we own in Indianapolis. We got a business line of credit and we used the equity among the four properties in Indianapolis as leverage for that line of credit. These are both business lines of credit that are backed by the equity in some of our properties. So the banks have liens on each of the properties and had to do appraisals on each of the properties which we had to pay for.

  • Investor · Nashville, IL · Member since 2016 · 79 posts · 51 votes
    9y
    Heidi Backer You would have to talk to the bank that has your current mortgage. That would probably be the only bank that would do that for you. Even then they might not want to do this type of loan structure.
  • Investor · Nashville, IL · Member since 2016 · 79 posts · 51 votes
    9y
    Shiloh Lundahl What are the terms of your loans if you do t mind sharing?
  • Rental Property Investor · Charlevoix, MI · Member since 2016 · 51 posts · 13 votes
    9y

    .

  • Rental Property Investor · Charlevoix, MI · Member since 2016 · 51 posts · 13 votes
    9y

    @Devin Haertling cool concept Devin. Which lender are you using?

  • Real Estate Investor · Lincoln, NE · Member since 2013 · 584 posts · 353 votes
    9y

    All of business is relationships.

    There are a lot of people asking for what bank is being used, and a lot of PM's flying around based on this thread.  Just because Devin or someone else is doing this with a particular bank doesn't mean that you can call that bank up and say "I want the deal Devin is getting."  They will most likely tell you no.

    You have to build a relationship with a lender to get to that point.  You have to show them that you are a good credit risk and that you make good financial decisions.  Once you have established a banking relationship and have a reputation for making good deals, other banks will start coming to you to offer you good deals.  I would guess that pretty much any bank, certainly the smaller local or regional ones, will do this kind of lending.  It's not about their willingness, it's about the relationship they have with the borrower.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Wade Sikkink  your right  with this scenario.. small town probably small bank

    the three C's are in play....  well known borrower

    he has Character the bank believes in he has Capacity the bank believes in and he has Credit that is verifiable.

    Can't stress enough how these types of deals are fostered and based on your banker going to bat for you at loan committee.

    And especially in todays lending world.. both of the commercial banks I use one in Oregon and one in Charleston  they are very upfront with the fact that they are not looking for just anyone.. they want to take the known performers and super size them...

  • Investor · Pearland, TX · Member since 2015 · 10 posts · 2 votes
    9y
    Wow!!! Very interesting thanks
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