I can't seem to find a definitive answer to this.
Some people say that the limit is 10 properties (not loans), so even if all 10 properties were under 1 loan, you would be at the limit. Is this the case?
Also, does it make a difference if the properties are under an LLC?
My lender thinks that if I roll my first 10 properties (current separate loans) into a single blanket loan, under an LLC, that I can effectively start over at 0 properties. Is this true or false?
That sounds like a wise move: get your properties into a business entity structure and out of your personal name. The greater your net worth the more likely someone will try to take it from you through a frivolous lawsuit.
Once your business entity structure is established by that, use it to acquire properties in a business rather than buying them yourself.
To avoid being the target of a lawsuit the rule is: control everything, own nothing.
The "work-around" is to move your properties into a business entity structure and out of your personal name(s). Even if you hit some limit and the business can't buy anymore, start a new business and "fill that up", ... lather, rinse, repeat.
Financing is not primarily controlled by ownership. It goes by the debtor, not the owner (they're not always the same!).
That said, bounce the rest of your question off an attorney. If both your names are on the paperwork, you're likely to be considered a single entity and, therefore, subject to the lower limit.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
I can't seem to find a definitive answer to this.
Some people say that the limit is 10 properties (not loans), so even if all 10 properties were under 1 loan, you would be at the limit. Is this the case?
Also, does it make a difference if the properties are under an LLC?
My lender thinks that if I roll my first 10 properties (current separate loans) into a single blanket loan, under an LLC, that I can effectively start over at 0 properties. Is this true or false?
Great question Jeff, thank you for posting it. Happy New Year and here's to wishing you plenty of success in 2016!
@Lisa Kohl No, that is wrong. The reg is "10 Properties that have a loan/mortgage". You could have 10 properties with 2 mortgages on each property, or one blanket loan for the 10 properties, both count as exactly the same....10 mortgaged properties. Not sure about the properties being in an LLC, with No personal guarantee.
@Wayne Brooks I stand corrected. Appreciate the feedback.
@Lisa Kohl No, that is wrong. The reg is "10 Properties that have a loan/mortgage". You could have 10 properties with 2 mortgages on each property, or one blanket loan for the 10 properties, both count as exactly the same....10 mortgaged properties. Not sure about the properties being in an LLC, with No personal guarantee.
How do we "get around" that?
If 10 mortgages our in DH name but deeds are in both of our names, does that count against the limit for me for 10 mortgages? Can we effectively have 20 between the 2 of us?
That sounds like a wise move: get your properties into a business entity structure and out of your personal name. The greater your net worth the more likely someone will try to take it from you through a frivolous lawsuit.
Once your business entity structure is established by that, use it to acquire properties in a business rather than buying them yourself.
To avoid being the target of a lawsuit the rule is: control everything, own nothing.
The "work-around" is to move your properties into a business entity structure and out of your personal name(s). Even if you hit some limit and the business can't buy anymore, start a new business and "fill that up", ... lather, rinse, repeat.
Financing is not primarily controlled by ownership. It goes by the debtor, not the owner (they're not always the same!).
That said, bounce the rest of your question off an attorney. If both your names are on the paperwork, you're likely to be considered a single entity and, therefore, subject to the lower limit.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
That sounds like a wise move: get your properties into a business entity structure and out of your personal name. The greater your net worth the more likely someone will try to take it from you through a frivolous lawsuit.
Once your business entity structure is established by that, use it to acquire properties in a business rather than buying them yourself.
To avoid being the target of a lawsuit the rule is: control everything, own nothing.
The "work-around" is to move your properties into a business entity structure and out of your personal name(s). Even if you hit some limit and the business can't buy anymore, start a new business and "fill that up", ... lather, rinse, repeat.
Financing is not primarily controlled by ownership. It goes by the debtor, not the owner (they're not always the same!).
That said, bounce the rest of your question off an attorney. If both your names are on the paperwork, you're likely to be considered a single entity and, therefore, subject to the lower limit.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Thank you for the information.
We are actually looking at an LLC right now. We have 3 properties and our attorney did suggest setting up the LLC, but we need to get an attorney in a different state for that (the properties are located in a different state than we reside).
That sounds like a wise move: get your properties into a business entity structure and out of your personal name. The greater your net worth the more likely someone will try to take it from you through a frivolous lawsuit.
Once your business entity structure is established by that, use it to acquire properties in a business rather than buying them yourself.
To avoid being the target of a lawsuit the rule is: control everything, own nothing.
The "work-around" is to move your properties into a business entity structure and out of your personal name(s). Even if you hit some limit and the business can't buy anymore, start a new business and "fill that up", ... lather, rinse, repeat.
Financing is not primarily controlled by ownership. It goes by the debtor, not the owner (they're not always the same!).
That said, bounce the rest of your question off an attorney. If both your names are on the paperwork, you're likely to be considered a single entity and, therefore, subject to the lower limit.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Hi David, thanks for the reply. Do you know for a fact that if a property is under the name of a business entity, that it doesn't count towards your conventional mortgage limit? Or is that your guess?
Ask your attorney and/or banker to verify: Property owned by a business you control is owned by that business, not you. It counts against the business, not you.
Hit the business's limit? Start another ... and another, and another, and ...
Want a real-life example? A person in my investing group has 7 companies and controls 117 properties, each one with some kind of financing: individually or as part of a commercial loan package.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
@Lisa Kohl No, that is wrong. The reg is "10 Properties that have a loan/mortgage". You could have 10 properties with 2 mortgages on each property, or one blanket loan for the 10 properties, both count as exactly the same....10 mortgaged properties.
Bingo, our winner. The Fannie cap is 10 financed residential properties total, regardless of the number of loans, and including private notes that will show up in county records (even if they aren't on your credit report).
The way you game this if there are two spouses earning income is to split them up among themselves so that each individual spouse has <10 financed properties as "...a married woman, as her sole and separate property" and with only one spouse on each loan.
Another way you game it is by having fewer properties with multiple notes. If you're at 10, find a private investor (or portfolio lender) that will give you a 2nd on one of them large enough to pay off any/all liens on another, and now you're down to 9.
Way #3 to game it is to mix in some financed commercial real estate and/or 5+ unit properties. Does not count towards your total.
The discontinuities where things get harder are: 4 financed properties, 6 financed properties, and then 10.
Its 10 loans.
Hit the 4 cap, consolidate, hit the 4 cap again. Considate a 2nd time, incorporate, transfer the profits to the business. Profit for 2 years, build a portfolio, establish yourself as a business entity specializing in real estate, grow from there as a business using business loans to grow your business.
@Lisa Kohl No, that is wrong. The reg is "10 Properties that have a loan/mortgage". You could have 10 properties with 2 mortgages on each property, or one blanket loan for the 10 properties, both count as exactly the same....10 mortgaged properties. Not sure about the properties being in an LLC, with No personal guarantee.
Just to clarify, a 2-4 unit property would still count as a single property?
> Just to clarify, a 2-4 unit property would still count as a single property?
Yup.
And another reminder that 5+ unit properties are not included in the count.
> Just to clarify, a 2-4 unit property would still count as a single property?
Yup.
And another reminder that 5+ unit properties are not included in the count.
Is the qualifying on a 5+ different? I thought I read that at 5+, it's a matter of having the down payment and reserves, and the income from the property in question is how the bank decides whether to finance. Of course, that assumes good credit, etc. I am asking because my wife and I decided to go all out on multi-units over the next few years. I want to make sure I'm making the best moves possible.
5+ is commercial, not an area I know a lot about.
I know that it's sufficiently uglier that you don't see a lot of 5-10 unit properties because once you're in commercial world you may as well go all out and get 11+ unit properties. At least that seems to be what plays out, but again I'm not an expert on commercial.
Mah fellow lenders, lend me your eyes.
@Jonathan J. Miller @Upen Patel
https://www.fanniemae.com/content/guide/selling/b2...
> If the mortgage is secured by a second home or an investment property, the borrower may own or be obligated on up to ten financed properties.
> These limitations apply to the total number of properties financed, not to the number of mortgages on the property.
Mah fellow lenders, lend me your eyes.
@Jonathan J. Miller @Upen Patel
https://www.fanniemae.com/content/guide/selling/b2...
> If the mortgage is secured by a second home or an investment property, the borrower may own or be obligated on up to ten financed properties.
> These limitations apply to the total number of properties financed, not to the number of mortgages on the property.
Hey! Chris,
I think we are saying the same thing.
* An individual can have up to 10 mortgages, if the mortgage is for 2nd home or investment. I.e. This limitation does not apply for primary residence. You can have 20 loans, but if the new loan is for a primary residence then it does not matter.
* Since there can be only 1 Fannie/Freddie/FHA/VA/USDA loan per property, "limitations apply to the total number of properties financed" is stating the same thing.
Mah fellow lenders, lend me your eyes.
@Jonathan J. Miller @Upen Patel
https://www.fanniemae.com/content/guide/selling/b2...
> If the mortgage is secured by a second home or an investment property, the borrower may own or be obligated on up to ten financed properties.
> These limitations apply to the total number of properties financed, not to the number of mortgages on the property.
Hey! Chris,
I think we are saying the same thing.
* An individual can have up to 10 mortgages, if the mortgage is for 2nd home or investment. I.e. This limitation does not apply for primary residence. You can have 20 loans, but if the new loan is for a primary residence then it does not matter.
* Since there can be only 1 Fannie/Freddie/FHA/VA/USDA loan per property, "limitations apply to the total number of properties financed" is stating the same thing.
The link (thanks Chris!) seems to state that a blanket loan wouldn't work, because Fannie Mae counts the total number of properties you have financed, not the number of loans themselves (and it doesn't matter if the loans are sold to Fannie Mae or not):
Do you guys interpret this the same way?
Do you interpret this the same way?
I've never seen or heard of a blanket loan as a way to game things to stay in Fannie world. Yes I would interpret as you have.
If you had a property with sufficient equity to absorb the debt on 2 other properties, that could work.
Prop 1: loan $300k value $800k
Prop 2: loan $100k value $150k
Prop 3: loan $50k value $95k
$300 + $100 + $50 = $450 on an $800k property. Certainly doable, and now you just reduced from 3 financed properties to 1. For investors, the property with a crap ton of equity seems to often be the primary residence. So there's a risk factor here, because you can't walk away from your primary residence, let it foreclose, and still have a roof over your head... but you can with investment props.
The limit you are asking about is for personal mortgage loans in your name (traditional mortgages). Properties in a business entity (like an LLC) will not count against your personal limit. That's because they aren't "mortgages" in the typical sense. They are usually "in-house loans" or "business loans" collateralized by the property.
The drawback is the terms are usually worse than traditional mortgages in your name. They are usually amortized over ~20 years with a 5-7 year balloon and 1-2% higher interest rate than "mortgages" in your name.
The limit you are asking about is for personal mortgage loans in your name (traditional mortgages). Properties in a business entity (like an LLC) will not count against your personal limit. That's because they aren't "mortgages" in the typical sense. They are usually "in-house loans" or "business loans" collateralized by the property.
The drawback is the terms are usually worse than traditional mortgages in your name. They are usually amortized over ~20 years with a 5-7 year balloon and 1-2% higher interest rate than "mortgages" in your name.
That contradicts what it says in the Fannie Mae guidelines linked earlier (I simplified the wording slightly):
So the only way properties in an LLC don't count towards your limit is if you own less than a 25% share of the LLC, and then only if the property(s) are in the LLC's name.
However, it says that properties/loans held in the name of a corporation or S corporation don't count towards your limit, so that seems promising. Is either of those a decent substitute for an LLC? I don't know much about them and would love any thoughts on that.
Its 10 loans.
Hit the 4 cap, consolidate, hit the 4 cap again. Considate a 2nd time, incorporate, transfer the profits to the business. Profit for 2 years, build a portfolio, establish yourself as a business entity specializing in real estate, grow from there as a business using business loans to grow your business.
You can get one mortgage to cover multiple properties and that would count as 1 towards the 10 limit?
Alright, I've got some answers, because I'm doing this right now.
We have an LLC with a blanket loan for 6 properties and another single property in a commercial loan (that's 7).
We have a private residence and another investment property under a personal loan (even though investment property is held under LLC) (that's 7+2=9).
We're purchasing another investment property right now.
The lender counts this as financed property No. 10. The LLC does not change the count because we own it 100%. The blanket loan doesn't change it, because the rule is "financed properties" not number of loans.
The only way to get around this is to change to corporation with the financing in the corp's name. Even with LLC treated (taxed as) S-Corp not partnership, they won't let it pass. Maybe other lenders interpret it differently (that last bit) but I wouldn't bet on it.
Problem is that most mortgage brokers and underwriters have no clue about this. They discover everything in final approval stage (we had final approval with 25% down, now underwriter says they made a mistake and it should be 30%).
Unfortunately, I discovered the hard way that LLCs are pretty much useless for property in CA. Might as well do an S-Corp off the bat.