Is it a "refinance" if you own the properties free and clear?

Financing, Hard Money Lenders, Private Money
1

(note: this is theoretical)

Let’s say I own 8 or 9 rental properties that have no liens, mortgages, etc, and are owned free and clear. These properties are all held by a single LLC that has been properly set up by a legal professional. Due diligence was done and proper insurance is in place.

These properties, if they had been mortgaged at around 7%, cash flow well above $100/month. There is 8 month of ownership on these properties, and they are professionally managed. They were bought while in distress at fire-sale prices, fixed up and are all occupied by good tenants.

Now I want to leverage this asset (get my money back out) so I can buy some more! :slight_smile:

I have some questions for the professionals here.

  1. I want to mortgage the entire portfolio at once. What is this kind of financing called?

  2. Is this a commercial loan that can be made directly to the LLC? Is it assumable if the LLC itself is sold (along with all interests in the properties held by it), without triggering a due-on-sale clause?

  3. What would typical terms be for a loan like this? 30 year fixed? 20 year? 7%? What would the closing costs be (approximately), and what would dictate how much money I could get back out? Would it be based on the cash flow (as a commercial loan) or on the FMV of the homes themselves like a traditional loan?

  4. Are there any more “creative financing” ideas that could maximize the leverage on these properties?

The credit of the owner is high 700’s.

Thanks!

2

If you want to do them all at one time it is called a “Blanket Loan”.
Yes it is a commercial loan that is made to the LLC.
The terms depend on the lender but most likely it would be a 20, 25, or 30 year amortization with a 5,7, or 10 year fixed period.
The rate would most likely be based on Prime plus ?, it depends on what you negotiate with the lender.
The amount of cash you can pull out depends on the rental income on the properties. Most likely it will not be based on the market values like it would be on a conventional loan.

3

Thanks for the answer.

While searching more about this, I found a thread that mentioned a “blanket business line of credit” that could be secured by the existing properties.

It mentions 80% LTV, interest-only payments, 1+prime and that new properties can be purchased and collateralized into the revolving loan.

The post is mentioned here: http://www.reiclub.com/forums/index.php/topic,16989.msg83399.html#msg83399

This seems like an ideal way to finance the growth of a rental portfolio. Am I missing something?

Is anyone else doing this?

Would there be a partial release clause, typically?

–

Also, do lenders balk at smaller blanket loans (like 300k TOTAL) of non-contigious SFH rentals?

Thanks a lot!

4

Sadly those days are gone. Anything you read prior to August of last year is probably obsolete. Even products from a couple months ago could be questionable.

There is still 1 lender doing a commercial blanket loan with residential properties not adjacent. Minimum loan amount is $750k.

Another lender wont do them as a blanket loan, rather individual properties to the business. Max 75% ltv, minimum loan amount $50,000, maximum $500,000 combined loans per borrower, refinances require 12 month seasoning.

Speak to your local banks; commerical lending officers - not retail.

5

My small local bank says they will do a blanket loan for me right now on 2 duplexes in separate areas plus a re-finance of an existing property with some equity. I believe NY Prime plus 1 and 1/2 % points. 10 or 15 year amortization, variable loan fully amortized.
Cultivate your small local commercial banker! Get a small loan, pay it off, get another, re-fi, etc. Never be late. Then you have a source of money when you need it.

FurnishedOwner