How to exceed the 4 mortgage leverage

Question

Hello,

I have not gotten any rei yet I am located in Scott county MN. I am in the process of paying down all my debts to reduce the cf needed to stop working my regular job. I have been learning a lot about what to repair to make below market homes worth more ie bathroom,flooring,kitchen. I am looking for sfh and am trying to find the quickest way to get out of the rat race I know mfh can be really competitive and that is the reason I chose sfh. One thing I am having trouble understanding is what to do once you hit the 4 mortgage limit. I am wanting to know what have you personally done and what you can reflect on now that was a mistake when going through this also. I appreciate all the info you can provide.

Thank you

Andrew

Michael Glist · Answer

Peter is correct in that they changed it from 3 to 10 which is a nice help. Once you reach the 10 you have a few options.

Look at lenders that offer portfolio loans. They will likely not have a 10 mortgage limit. There are a lot of lenders that understand how investors work so they have programs specifically for investors purchasing investment properties.

You can as mentioned switch from single family to multifamily once you hit the 10 mortgage limit as commercial loans do not go by those rules. So you could start then acquiring 5+ unit properties and continue building your portfolio that way.

The other option would be once you hit the 10 mortgages you can do a portfolio loan and wrap 9 loans up into 1 loan (I say 9 instead of 10 because I am assuming you will still have a mortgage for your primary residence) and then on paper it looks like you only have 2 properties thus giving you the ability to go out and get another 8 conventional loans.

I hope this helps.

Peter Mckernan · Answer

@Andrew Kiefer the 4 house limit was the past, they loosened up the ability to buy up to 10 properties with loans.

After the 10 you can work with local backs, credit unions, community backs and find someone who lends as a portfolio lender who would take on more than that. There are banks out there that provide more than this amount of loans, just takes some searching. You can also work on finding private money to fund deals as well, seller financing, and pay one off as you hit 10 doors. Once you get into commercial this rule goes out the window, so you could go 10 doors SFR then go 5 units and above after that.

Bill B. · Answer

@Marco G.

That must be lender specific, it was never applied to me. But then again, we’re talking 6 months of rents, TOTAL. So maybe you need $30-$50k in reserves? If you have zero cash, zero savings, then you need $50-$80k in your retirement? And if you’re married, that’s combined. I usually have $10-$20k I plan on spending on renovations. And that money counts even though you’re going to spend it the day after you buy the property. That drops your reserves to $10-$40k. Or maybe $50k in retirement combined with your partner.

Marco G. · Answer

@Bill Brandt agree. But retirement account money is also reduced by 40% for these purposes. Meaning if you have $100K they consider that $60K in reserves. Reason is that if you had to withdraw those funds you will also be taxed/penalized on the draw.

Bill B. · Answer

Most people have 6 months of rent reserves in their retirement accounts. And decent lender will let you use them. The original limit was 4 investment plus a primary. About 10 or 15 years ago it became 10. You’ll pry pay 1/2% higher interest on 5-10. If you’re married you can each get 10 if you apple for them separately.

It sounds like you’re worried about the traffic in Vegas as you pull out of your driveway in MPLS. This will be one of the smallest problems you run in to, it’s a non-issue.

Marco G. · Answer

@Chris B.

Yes higher reserves after fourth, some also higher downpayment if investment but five through 10 are still attainable. After that you get no more federally backed mortgages.

Chris B. · Answer

I had this same question for my mortgage broker in the past few months and I got a different answer.  I'm not sure if maybe I misunderstood, or this broker simply works with a different formula.  However I was also told there is a limit of 4 standard mortgages.  If you were to get a 5th mortgage, you need it to be for your new primary residence and then there is no issue.  If the 5th is an investment property, then you will need extra emergency reserve money.  Proof you have funds which can pay all of your mortgages for 6 months.  So, based on the information I received, any property bought after your 4th needs to be a primary home to avoid the extra funding requirements or you can go ahead anyway if you do have the extra reserves.  Not sure what the upper limit is and that may be 10.  Has anyone else herd anything like this?

Andrew Kiefer · Answer

@Peter Mckernan ok that is what I was thinking originally get 4 units then sell buy bigger commercial and rinse and repeat but that is awesome that they now allow for 10 😄

Thank you

How to exceed the 4 mortgage leverage

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