Limit to number of Rentals you can own?

Question

Hi all, I'm starting out and am in the market for my first rental property. I'm working with a reputable wholesaler who I plan on buying from. My strategy is to buy, fix, and hold by acquiring a property with a hard money loan and then refinancing and cashing out recouping the majority/all of my initial investment I used in acquiring the property.

I have heard that once you have four mortgages out on four rental properties, it becomes more difficult to get approved for additional loans. My question is, is this generally true? If so, are there ways around this?

Thanks,

Nick

Trevor Schumann · Answer

Keep in mind both Fannie & Freddie have different limits. While Freddie still limits you to 4 mortgages, Fannie has re-raised the limit to 10 properties. If your mortgage broker is telling you the limit is 4 that just means he doesn't know what he's doing. You need someone with experience working with investors who can send loan 5 through 10 directly through Fannie. You will find your reserve requirements do increase as properties are added, but if you keep your DTI in line (<45%) you should be in good shape as long as your net worth is growing alongside your REI business as it is meant to. Remember you can count 60% of retirement assets towards reserve requirements plus all liquid cash and investments. The reserve requirements are no longer than 5-12 mths PITI & I think the general consensus around BP is that if you can't afford the reserve requirements you have no business buying the home. Keep in mind each of those properties can be up to a 4 unit so you can achieve up to 40 doors on your own or 80 with your spouse. As far as getting more properties than that, there are many options available but you can cross that bridge when you come to it, as if your biggest problem with 40 doors is getting financing for door #41, I'd say your in pretty good shape

.

Steve L. · Answer

Nick there are tons of investor posts on the they utilize strategies to get around this.

• Private Loans (from real people)
• Regional Banks
• Credit Unions
• Seller Carry
• Institutional Deb

Nick R. · Answer

Thank You everyone for your posts, it's been very helpful!

Jon Holdman · Answer

@Trevor Schumann the reserve requirements once you hit the fifth mortgaged property are six months PITIA for all properties.

Rates on portfolio loans are typically just slightly above the rates on the same term for a conventional loan.

Requests for lenders need to be posted in the Marketplace forum.  Sorry.  It won't be any major bank, though.  These are usually smaller banks or credit unions.

Trevor Schumann · Answer

Thanks @Jon Holdman  after following up with both Fannie and Freddie they confirmed that both are back to ten loan maximums. More specifically they mentioned reserve requirements are 6 mths on the property being purchased and 2 months for every additional property in the portfolio. Does anyone know what going rates are on portfolio loans?

Gary Hurst · Answer

Find a local banker that will in house the loans.  Also, put some in your name and others in your wife's name if you are married.  But, we have gone to a local banker showed him our portfolio and passive income.  He now will finance any property he approves at 75LTV.  Good luck

Jeremiah B. · Answer

A few things:

• Today, the limit is 10 through fannie/freddie.  It's true that 5-10 are more difficult than 1-4, but they are doable.  In fact, I will close on #5 in 10 days.
• If you're worried about the limit and are married, get mortgages in one of your names rather than both.  This will increase your limit to 20.
• Today, the options going beyond 10 are tricky, but doable.  @Steve L. list was a good one, though I think you can include HELOCS to that (I'm not certain).

But most of all..

• The rules will change in the future!!!!  No one can tell you what conventional financing will look like in 5-10 years.  fannie/freddie may increase the limit, remove the limit, lower the limit, they may go under, they may stay the only shop in town, or they may become irrelevant for investors like me.  So, today, I'm trying to make progress towards our limit of 20 (10 for me, 10 for the wife).  In 7 years when I hit that limit, I'll re-evaluate my options, but I promise you that I will be closer to financial freedom than I am today and that I will have viable options available.

Paddy O'dowd · Answer

in response to queries re aimloam.com, i would rate them as the best financing co i have come across - i encountered the typicaly things like lots of docs reqd, at times i wanted faster respone etc.. but overall interest rates are the best i have encounted and i still have three mortgages through them, they are a direct lender, everying done electonically thru web and email plus they have agents you can talk to over phone

Jon Holdman · Answer

@Trevor Schumann has Freddie recently dropped back to four?  They issued guidelines about loans 4-10 a few years ago.

Ali Boone · Answer

When I was looking into it, my lender told me it's not as hard as everyone makes it out to be to get the post-4 mortgages. The qualifications tighten and your debt ratios may hamper some, but it's not undoable. So don't rule it out until you have to and then once you have to rule it out, whether after 4 or 10 mortgages, you just have to get creative after that.

Limit to number of Rentals you can own?

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