Starting rental property portfolio with 100% equity in one rental property

[Brian T. Grooms]

Hi all,

I am new to biggerpockets and eager to start building a portfolio of rental properties. I currently already own one rental property free and clear. So far with my one property, I have had a great property manager with no more than 2 weeks of vacancies in the last 4 years. Maintenence throughout the last 4 years has been reasonable. My plan is to start buying properties through auctions/foreclosures or anyway that allows me to buy below current market prices and have positive cash flow properties. I know these properties may not be easy to find but I want to be ready to pounce when I come across the right buy.

My questions is this: How do I leverage my current 100% equity in my only rental property? I plan on aggressively building my portfolio from the ground up purely from the equity in the property I currently already own. I inherited the home I am renting now and do not have much experience with mortgages and/or bank lines of credit. I know I am in a very advantageous starting position and want to maximize it... I have been looking at Home Equity Lines of Credit (HELOCs) mostly. What advice do experienced biggerpockets members have for me?

Your advice is much appreciated.

[Laura Williams]

@Brian T. Grooms From what I understand (I'm not an expert) you have a couple of choices. You can cash out refinance on a traditional bank mortgage where you can get a 15 or 30 year fixed rate loan. This will be the best and lowest interest rate but there are certain qualifications you have to meet with income/reserves etc.  From what a banker told me after you have 4 loans you can no longer get a cash out refinance traditional mortgage. Some fannie mae/freddie mac rule. You are allowed up to 10 traditional loans but after 4 they can't be cash out refinance. So just something to keep in mind. 

Your second choice would be to refinance with a commercial or portfolio lender where they hold their own loans and usually less strict with the rules. The down side is the interest rates are slightly higher and usually a 5 year ballon payment but you are suppose to be able to get the loan renewed at that point. Monthly payments can be higher cause they usually don't amortize them over 30 years….it's usually 10-15 years. But probably easier paperwork and lighter requirements.

Third option could be a lender like Bob Green from the THG Capital Fund …he's a member of Bigger Pockets and is an asset based lender. I haven't used him before only talked to him on the phone.  His rates are competitive and he will work with a lower Fico Score and doesn't require tax returns. I think his requirement is that the property has to appraise for a certain amount and he does loans though out the US.  I don't want to misquote anything so best if you ask him directly about specific requirements.  

If I were you I wouldn't do a HELOC. I would try to do a 30 year low interest fixed rate refinance mortgage first and if you don't quality for that then try a Portfolio lender or someone like Bob Green….depending on your financial situation. All lenders are going to require that you have some equity in the deal so you're probably looking at 60-80% loan to value.