What would we qualify for? Looking to expand current portfolio!

Question

Hi Folks,Was hoping to lean on other's with experience to get some direction on how to expand our portfolio of real estate investments, which investments might be best for us, and get some help estimating what we might qualify for when it comes to financing. Right now, we have 1 investment property and our primary residence. When we upgraded our home 3 years ago, we kept our first house as an investment (turned out to be a really good decision!) and have been renting it ever since. Here's our current holdings:Rental: Est. value - $190k, Tax Value - $205k, Equity: $80k Cash Flow: +$500/moPrimary Residence: Est. value: $480k-$520k, Zillow value: $510-605 (I wish) ,Tax Value: $387k Equity: $107-200k So total real estate value is most likely about $700k w/ $400k in debt. I think w/ the 70% rule, that would give us a max of $90k to draw on?Liquid assets are about $35k in cash, $15k in securities, and another $20-30k we could pull out of my wife's 401k as a loan to ourselves. The only debt we have besides the real estate is my wife's school loans (~$50k). So total liquid assets not including the wife's school loans would give us a max of $70-80k to play with - let's just say $50k to provide a cushion. Want to say both our credit scores high 6s low 7s, with no major red flags like a bankruptcy or anything. If we went for another single family home and put 25% down (without drawing on equity), it means we'd be looking at about a $200k property - which wouldn't buy much based on our current home. We might eek out $250-300/mo in add'l cash flow...which when putting out $50k as the down payment isn't a great investment (~7% cap rate?). The one good thing about the SFH's is in that price range the renter's have been pretty dang good. Haven't had a single issue. Did have one that broke the lease, but paid the penalty for early termination and it was re-rented within 2 months on another 4 year lease. Assuming the house holds up, it's practically a worry-free investment (knocking on wood as I type that!)I'm not sure how much a lender would allow us to pull out of our present homes if we wanted to make a larger investment. We would likely have to refi both our present home, rental, and the new investment property as part of a portfolio ( I believe...I've never done any larger deals). We did a quick HELOC application at figure.com, and though we more than likely won't go that route, they offered us $80k at 9%. If we did a portfolio deal, we'd be looking at $50k available from cash, $125k from equity - so say $175k available as a down payment. At a standard 25% down commercial loan rate - that would let us finance a max of $700k for a multi-fam unit? Is that realistic? We wouldn't go for the full amount, but if we found a property with some great cash flow in the $500-600k range, it could be worth it. Family wise, we're pretty stable - family of 4 w/ 2 young boys (4 and 5) and typical monthly bills. If you guys were in my position, what would you do or choose to invest in?

Brian G. · Answer

@Jeff Lever you should find a way to stick with conventional loans as long as possible since they are the cheapest money you can borrow with the best terms. I wouldn't finance out of what you currently have into a portfolio loan since it will be more expensive. I believe you can do a cash-out refi at 75% ARV on a SFH. To estimate the cash out: Current Value x .75 - current balance - $3k closing costs = cash in hand. The advantage of a cash-out refi is a longterm fixed rate, the disadvantage is you immediately begin paying on the money borrowed and your rate will more than likely be higher than what you already have, making the current loan you have now more costly. Alternatively, you could get a Heloc from Pen Fed. If you get it on your primary the current terms are: 15 year draw period, 80% LTV at variable rate tied to prime (currently at 5.5%), or 85% LTV at variable rate tied to prime + .5% (6% total), or 90% LTV at variable rate tied to prime + 1% (6.5% total). You can also get a Heloc on the rental: 12 year draw period, 80% LTV at variable rate tied to prime + 1%. There is no closing cost unless they need a physical site visit appraisal. If you close the Heloc within 2 years they back charge you the initial closing costs waived (approx. $400-$600). With either option you choose P/I payments or I/O payments. The rental can not be in an LLC to get a Heloc. The advantage with the Heloc is you have it sitting there and only pay interest if/when you use it (like a credit card). The disadvantage is that it is a variable rate. Keep in mind with Pen Fed if/when you own 4 properties including a primary they will ONLY put a Heloc on your primary. Otherwise, if you have 3 properties or less including a primary, they will put a Heloc on ONE/MORE properties.Generally, the Cash-Out Refi is considered a good product for a longterm strategy (ie buy/hold) whereas a Heloc is considered a good product for a short-term strategy (ie fix and flip). Your ability to do either depends on your DTI ratio, credit score, and a bunch of other variables. Hope this helps.

Kerry Baird · Answer

Welcome~There is no need for portfolio lenders on your single family homes, at this point. You will get the best rates and terms with conventional financing, and focus on that for your first 10 mortgages.