10 x SFR cash out refi 60% to 80% LTV - Financing Survey/Review

[Chris Mason]

Scenario: The investor owns 10 single family homes acquired over the course of the last couple years. Missed out on the great COVID rates, had to take out a mixture of Fannie and DSCR loans to close, with sub-optimal interest rates, maybe in the 7s to 9s. The portfolio of homes would do a lot better if the rates weren't trash, and since they are a bigger pockets member they became aware that you can wrap up a bunch of single family homes into a single commercial mortgage (sometimes called a "Blanket Mortgage"), generally if they are geographically concentrated. Reminder that from the CRE perspective, the following are "single family" homes: condos, single family homes, duplexes, triplexes, and fourplexes. And, while the investor is at it, they may as well do a cash out refinance, or at least they want to know what those numbers look like.

Here is what that financing might look like, along with pros/cons.

From left to right: No prepayment penalty, 3 year prepayment penalty, no prepayment penalty. 

The way to read "5/25, 10 years maturity" is that the rate is fixed for 5 years, the payment is calculated on a 25 year amortization, and there's a balloon payment due at the 10 year mark. 

The 80% LTV option: Obvious pro is the leverage point. This is a local credit union, this would only be an option for an investor that both owns the properties near Austin, Texas, and that personally lives in the area as well. Great news for the local investors, bad news for the California absent landlords (our software catches/filters by property location and borrower primary residence, there might for example be a lender in California that lends nationwide but requires the borrower to live in their 3-county footprint, and every other configuration of that you can imagine). Con is of course this is the highest rate option, however with no prepayment penalty one can re-evaluate their options very soon down the road.

The 70% LTV option: The interest rate is starting to look sexy, the downside is the 20 year amortization, that was in this case the tradeoff to get the leverage point and the rate. It does have a 3 year prepayment penalty, as well. The maturity matching the amortization means no mandatory refinance, in the context of rates more likely to go down than up, that's not a bad thing.

The 60% LTV option: Some folks wouldn't want to compromise on the amortization or the rate, but they might be willing to compromise on the leverage point, which is where this one comes in. In real estate we say "everyone wants the perfect house, at the perfect location, at the perfect price, but you don't get all three, so pick the two that are most important to you," and this is an example of that. Best leverage point, longest amortization, or best rate... pick two.