10 properties, now commercial loans?

Question

I have 10 financed properties.  What is the best way to buy more properties with loans?  If i do commercial loan with an ARM, what do most investors do when the rate goes up at 5 or 7 years?  In my case, i would be buying two new four plexs and i wouldnt want to sell them.  My goal is to hang on to them for a long time.  My main goal is monthly cash flow.

So what is the best thing to do once you are at 10?  Refinance the commercial when it goes up?  clearly people buy way more than 10 properties so what is the best way of financing them after 10?  can you give me some best practice examples of what you have done after 10?  I would buy 30 more properties if i know the path forward.

Sudhanshu Singha · Answer

@Chris Hill I have not personally hit the 10 property limit yet but the local investors who I keep in touch with all went to local portfolio lenders to finance additional real estate properties after hitting the 10 property limit. A lot of the smaller community banks are portfolio lenders and will work with you to increase the number of properties you have and usually don't have a limit on the amount of properties you can buy but may have a cumulative dollar amount they can lend to you. You will likely have to meet a Debt Coverage Ratio (DCR) but that should not be a problem since you are investing for cash flow to begin with and probably would not be looking to invest in a property which did not cash flow or cash flowed very little.

But yes, as you mentioned above the interest rate will not be fixed and most likely will change every five years but the amount is relative to the market rate at that time so it could increase, stay the same or even be lower depending on the market rates at that time. Usually after five years you will have plenty of time to put in rental increases so even if the interest rate does go up you can still maintain the initial cash flow.

Chris Hill · Answer

thanks for the replies.  None of the banks understand the term portfolio loan, is that simply another way of saying a business commercial loan?

Thanks for the answers.  I'm just so used to the traditional loan, but it sounds like to really grow, you have to go commercial loans correct?

Salvatore Lentini · Answer

HI @Rene Doyle - Yes, I hold all of my properties in LLCs.  Not each one in its own LLC (that's a discussion in itself), but a certain number of properties per LLC.  Some of my bigger properties are each held in their own LLCs.  The lenders I work with either prefer or require the loan be to your LLC instead of you individually.

Rene D. · Answer

@Salvatore Lentini do you hold the properties in an LLC? Any tips as I am nearing that mark too.

Salvatore Lentini · Answer

@Chris Hill - personally I wasn't able to get more than 5 single family rentals before the banks started turning me down...and that was with community banks.  Even though I was buying for cashflow they view each rental as a liability not an asset...so my "debt to income" disqualified me.  I ended up having to find lenders that loan based on the property and not the borrower.  Rates are a little higher but it has made it infinitely easier to grow my portfolio to where it is today.

10 properties, now commercial loans?

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