I’m looking for some answers and advice for creating long term wealth. I currently own a multi-family that I live in and I’m looking at expanding my portfolio to multi-family #2 that I want to NOO with. Few questions that I really can’t find any answers for in REI books.
Is there a bank max for investment properties and loans? Meaning if I take out a loan for lets say $90K for a single family home that I plan on renting out can I get another loan in a month or a few months?
What is the best way to get financing for buying & holding properties? Should I be concentrating on owner financing properties so I won’t have to put 25+% down?
How did you guys get your first couple of buy & hold properties? Did you put money down? Use OPM? Etc.
Thanks in advance!
We use small local banks. The only limit we’ve run into so far has just been how many properties that particular bank felt comfortable giving us loans for. We had one banker tell us a couple years ago that we reached his comfort limit. He said we could do other properties in the future with him after we got some others paid off. After we loaded up on properties last year and made our numbers much better, he recently contacted us about buying some properties they took back in foreclosure. We close on those Friday. We’ve had better luck at these banks than large nationwide banks. You can absolutely get other loans the following month. We’ve done that several times. Your experience will help you with that. Banks usually aren’t excited to get people into the landlording business because so many people suck at it and fail. Show you have experience and reasonable finances and doors will open for you.
That banker I talked about in point #1 used to give us deals with 100% financing and sometimes also rehab money. It was a dream and it came from a bank…not some super-secret way of finding financing. Now we’re putting down 15% on our deals, but it’s been in the form of leveraging some paid off properties. We typically do 10 year mortgages…makes the bank feel more comfortable so they can churn their money. Usually the loan is fixed for 3 or 5 years and then reviewed, but is on a 10 year amortization. We talked to a seller about owner financing, but he wanted 10%. We’re getting 5-6% from the banks…no thanks Mr. Seller.
First one we got into by taking out an advance on a credit card. It was at a really low interest rate though (I think it was 3.5 or 4%) so it didn’t feel like a dumb move. From there, we waited about a year and a half before buying more. We saved up 25% down for that deal. Things got better from there as far as how much we had to put down.
I couldn’t be happier with the way we’ve grown over the years. There are other ways to do it, but this has worked for us. It’s been a little skill, a little luck, and a lot of God that’s made this happen.
Here in Texas we have Mortgage brokers who work with Hard money lenders to do the “Texas Two Step.”
You take out a high interest loan (12-14%) with a HML for purchase, rehab and closing costs.
(HML lends up to 75% of ARV)
After you finish rehab and have it rented out, you do a rate and term refinance with the mortgage broker into a FHA loan at normal rates. (Also at 75% of ARV)
As long as your purchase, rehab and closing are less then 75% of ARV, you have very little money out of pocket.
You do have to pay for two closings, including two appraisals, two finance fees, etc…
All together you pay about 5k per closing, some of which can be worked into the note if the numbers are good.
I’ve had several that I’ve come out of pocket 5k, I’ve had one I came out paying 12k at the second close. It’s still better than 20-25% down.
At this time, lenders can put FHA mortgages on up to 10 properties for an individual.
Not all lenders will do this you have to find an investor friendly broker.
Great info here in both responses. Few follow up questions:
Justin, when you are doing the 10 year loans are you cash flowing or paying out of pocket? Do you have a basic example of what that type of deal looks like financially for you over the period of the loan?
Pete, could I get 10 FHA properties and my wife get 10 FHA properties?
Most of the time our payment is about 250/mo. Insurance runs about 350 a year. Taxes are around 800/year. So for round numbers that’s about 450/mo for mortgage, insurance, and property tax. A house like that rents for about 550-625/mo. Those are just ballpark numbers. Our mortgage payments overall are about 40% of gross rents. So cash flow is reduced somewhat but we’ll own them sooner and the banks like this better than stretching out the loans for longer.
As long as you each qualify for the loans independently, I believe yes.
Our mortgage payments overall are generally about 60% of gross the cost of rent. So earnings is lessened somewhat nevertheless we’ll personal them sooner plus the banks such as this better as compared to stretching out there the financial products for for a longer time.