0 to 6+ Units in less than 2 months going too fast?

[Brandon Rossi]

Quick Intro, 

I have been lurking in the shadows here, listening to podcasts and reading books for the last 8 months. My end goal is to reach financial freedom through cash flow. I am actively seeking fix and flips with a partner to build my cash reserves higher to support my rental business.

I have recently acquired a few rentals and continue to find good deals that I can purchase.  I am seeking advice on my financing strategy / financial situation. I am concerned that I may be going too fast with the potential pitfalls in how I am funding these deals. Should I tap the brakes or keep going hoping that the heard will be stronger if it is bigger?

I found a local lender that will do up to 85% LTV 3yr balloon amortized over 20 at 5.5% with no money down! Awesome right? Yet slightly worrisome when it comes to the "what ifs" when the balloon is due. My initial plan was to acquire them on these terms then refinance to a conventional mortgage ASAP. I would like to give some details on the properties and my financial situation before I get your feedback on my options going forward and whether or not I should slow down.

I just closed on 2 single family homes w/long term tenants. The properties have wear and tear but don't need anything as of now.

. Combined LTV $117.5k / $140k ends up being 84% I was hoping to be at 80% minus the refi. closing cost for moving to a conventional mtg.

. Combined Rent $1,550

.Combined Cash Flow $160 or $80 per unit and that is with 8% Property Management and 15% for repairs/vacancy

If I were to refinance to a 30 year conventional my cash flow would go from $80 to $200 per unit the only issue is if I want to do that right away I would need to use about $5k+ cash per property to cover refi closing cost and bring the loan amount down to 80% My other option is to leave them on the balloon for 35 months until they are paid down and hope the homes appraise well and interest rates are good at that time. 

By the end of February, I will close on 2 Duplexes also w/long term tenants. Also wear and tear but no repairs needed as of now. My 20 day inspection period starts tomorrow but the combined purchase price as of now is $157K and appraisals should come back at $100k+ each 

. Combined LTV $157k / $200k = 78.5%

. Combined Rent $2,270 (I should be able to get that up to $2,400+ easily)

. Combined Cash Flow $200 or $50 per unit and that is with 8% Property Management and 15% for repairs/vacancy

If I were to refinance to a 30 year conventional and increase rent total to $2,400 my cash flow would go from $50 to $153 per unit. Supposing the appraisals come back $100k each I would need to come out of pocket about $2k per duplex for refi closing costs costs.

Now for my third option, I found a credit union that will refinance 80% LTV 15yr balloon amortized over 20 with a slightly better interest rate. The rate is adjusted every 5 years to whatever prime is. I'm pretty sure they would take the sum of all of the appraisals and loan on 80% of that. So, my total appraised value would be $340K making my maximum loan $272K. This could work and I would be looking at about $2,000 in refi. closing costs versus $3,500+ per property. Of course with this scenario my cash flow would not be maximized and I have the risk of the interest rate adjustment every 5 years.

Another part of the equation is me. I am active duty Air Force and will be separating Jan 2019 and hopefully rolling into a new job with the same pay or more. This will not make refinancing after Jan very easy until I have a few months proof of income at a new job. I have about $40k in cash reserves. 

I can do the math and easily see which option is the best however, I can't bet on interest rates or where the market will be when its time to refinance. I guess that is where i am seeking advice on what i should do, suck it up pay out some cash to lock these things on a 30 year now, ride out the 3yr balloon and refinance when im below 80% or use the combined appraisals to put everything on the 15yr balloon ASAP.

I would like to name this the FRRRR strategy (a more specific BRRRR descendant) Finance, Rehab, Rent, Refinance, Repeat. I have realized for this strategy to really work with no money down I need to acquire properties at a maximum of 80% minus refinancing costs. Which brings me to the last subject. (hang in with me here)

The property management company has been giving me leads on properties that they manage in which the owners would like to sell. If they present a good deal to me that I can successfully FRRRR (by acquiring it at 80% minus refinance closing costs) should I keep doing it or would you all think that I am overextending myself with all of these 3yr balloon loans and perhaps my risk is too high?

If you made it this far, thanks for reading and feel free to leave some feedback!