How Are You Purchasing Multiple Properties Per Year?

Question

We're in the process of growing our portfolio over the next few years. We just closed on a 3/1 SFR and in escrow on a fourplex. We already refinanced (BRRRR) a 3/1 SFR earlier this year. We use a small community bank for each of these and the lender will refinance the second 3/1 later this year. When asking about future properties, he said that they would prefer to let our portfolio accrue some income before refinancing additional houses. My question is...how are the bigger portfolios purchasing 10,20,30 houses per year and carrying mortgages? Obviously this is lender dependent but all of our properties cash flow well and we otherwise qualify for the loans. This has become a huge pain point for us as we grow and I'd love to discover a solution to it.

Mark H. Porter · Answer

1031’s - always seeking to double my cash flow in each one.  Have no emotional tie to your properties and ALWAYS add doors from what your selling.

Sudhanshu Singha · Answer

@Ben Sears I agree with @Soddee R. Knight in that you should look at multiple lenders especially since the Covid-19 situation could be making your current lender jittery about refinancing your future investment properties. They may want to see how your cash flow holds up during this crisis before they commit to further lending.

Soddee R. Knight · Answer

I purchase about 10 properties a year (sfr and small residential multifamily). Sounds like you may need more equity to refi with that lender. If you plan to continue growing with that lender, while only taking equity out of owned property to acquire new property then you may need to wait until you get more equity in your owned properties.

Option 2: Interview new lenders and tell them what your plan is. There is so much cheap money out here that there's a lender who will accommodate you.

Be loyal to your cash flow first and your (2 to 3) lenders second.

John Teachout · Answer

Our growth is pretty slow and we purchase 1 or 2 houses per year. We try to do it with our own funds but occasionally use a HELOC or some low cost private money. If you continue to roll rental incomes back into the business, there should be some funding for additional properties. We have no W2 income so have to pull out living expenses.

Derek Carroll · Answer

@Ben Sear

Never pay full retail for a property and add value through improvements and/or increased income.

I always buy where I can force appreciation and then on refi get all of my cash back (if not more) and then do it again.  Same strategy if I’m doing single family houses, multifamily, or commercial.

Buying retail for cash flow with large down payments that you can’t get back with a refi can be a good investment strategy for many people and invest profiles, but it’s not a growth strategy and therefore not a fit for my current goals.

Theresa Harris · Answer

You also have to look at how much the houses costs.  It is easier to buy multiple houses a year when they cost $100K than $400K.

Soddee R. Knight · Answer

You're welcome! We hold at least 25% equity in all of our properties. Last year we were at about 50% equity portfolio wide; however, in February and March 2020 we re-leveraged with much cheaper longer term debt to roughly 72% (cash out refi). Our cashflow increased and we were able to purchase more units.

What's your equity position portfolio wide?

Tarik Turner · Answer

There are short term Line of Credit products available for investors that are used to help purchase multiple properties - not sure those products are available during these times but it is worth looking into

Soddee R. Knight · Answer

Good! If your loans aren't interest only, you should be able to build equity through mortgage pay down. Sounds like you'll be able to force appreciation (more equity) through rehabs. The faster you build equity the faster you can cash out refi and buy more!

At 26% you're just about maxed out according to most lenders. Typically they like to see investors at no less than 25%.

If taking more equity out to buy more deals is your goal, pay extra on your loans (provided they aren't interest only) and fix up your properties to forced appreciation (hopefully you'll get some market appreciation too with the Fed gov't printing all this money).

Ben Sears · Answer

@Soddee R. Knight thank you! If you don't mind me asking what's the average equity you hold in your properties?

How Are You Purchasing Multiple Properties Per Year?

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