Purchasing a rental portfolio

[Oscar Macal]

Hello all,

I've found a few single family portfolios ( ranging from 5 - 11 properties) that seem to be good deals. They are priced from $500 - $900k. And most are stating that the rents could be raised to increase cash flow.

So my question is, being that they are all in a portfolio, would raising the rents automatically increase the overall value of the portfolio since the properties within are residential? I understand that when dealing with commercial properties, simply raising the rent affects your CAP rate and therefore can increase the value of the commercial property. However, residential doesn't really work like that generally, but would it be different since they would all be in the portfolio?

My main concern would be being able to quickly increase value on portfolio to be able to cash out refi as much of my down payment money and get my money back out to purchase more properties instead of being tied up in the portfolio long term.

Hope my question makes sense. Any input is appreciated!

Oscar

[Andrew Moore]

Great input above! It sounds like you are planning on holding these for a while, so if the question is regarding maximizing the capital you can pull from the portfolio with a cash out refi, I think you have to look at the financial instrument you will be using to do the refinance. Are you going to refinance them into individual mortgages, or would you be refinancing the portfolio as a whole? 

If you are refinancing them into individual mortgages, the appraisal required will determine the market value based on comparable properties that have sold recently. It won't take into consideration rental income to derive value. 

If you are going to be refinancing the entire portfolio into one loan, it is going to be treated much more like a commercial asset so when it comes to the valuation they will lean more heavily on income from operations.