When to use a portfolio lender?

[Mike Barry]

Hello everyone,

Newbie investor here with 2 rental properties under my belt. Now that i've been bitten by the bug I'm ready to keep going. I want to do the best planning ahead that I can. From all that I have read here on BP it seems as if after 2 more loans (total of 4) I will begin to find getting a mortgage much more difficult. I've read a few different numbers on this with 10 being a possible total, but it sounds like at some point I will be restricted with the big banks. From what it sounds like at that point I will want to begin seeking out portfolio lenders who finance in house. 

The question I have is it a good idea to start using a portfolio lender now to keep all my loans going forward with the same lender? Does this offer any advantages? Will this help me in growing my real estate investing business? For the time being I am buying and holding, and would like to continue to grow as much as I possibly can.

Thank you in advance for your help, and if anyone has any lender recommendations for the ChicagoLand area it would be much appreciated!

[Adam Johnson]

Here are a couple thoughts, from my experience.  You will want to start building a relationship with multiple portfolio lenders, sooner is better.  If you are buying cash flowing property, then any increase in loan costs will be nominal, especially when you miss a deal because you haven't built the relationship.

I recommend working with multiple lenders.  This demonstrates to all of them that you have built trust with more than one lender.  The old saying "don't put all your eggs in one basket" certainly applies here.

I buy all of my properties in an LLC, so I automatically can't do Fannie/Freddie financing. The first question I ask when speaking with a lender is if they underwrite based on Fannie/Freddie guidelines. It they say yes, the conversation is over. I deal exclusively with regional lenders that do portfolio lending.

I like working with regional lenders because I can speak directly with people that play a part in the decision to lend.  I like that and it is worth every penny that it might cost me due to slightly higher rates.  I can pick up the phone, get a VP on the phone, pitch the deal to him (or her), and get an answer fairly quickly.  This process becomes even easier as time goes by.  It wasn't as easy in the beginning, but it was still much more common sense than trying to figure out how to convince a computer algorithm that I was a good lending risk.