Financing for Multiple 50k Properties

[Trevor F.]

I have a number of properties I purchased cash in the last year for around 50-70k each in North Carolina that are currently rented at market rents. I need to find financing for them and I don't want to use my conventional slots. What is the best route in this scenario? Most lenders i see have a minimum loan amount. What is the best route for these small properties? Bundle them together and portfolio cash out refinance? Properties may appraise for more than what i bought them for but i am not relying on that avenue. 

[Julee Felsman]

@Trevor F.  I would probably try to find a local bank that will finance them, in bulk, using a commercial loan. I've always called a mortgage secured to more than one property a "blanket" mortgage.

I'm a residential lender, so I also want to comment on this part of your initial post: 

I don't want to use my conventional slots.

When financing a second home or investment property conventional conforming (Fannie/Freddie) guidelines allow you to have up to 10 financed 1- to 4-unit residential properties. Under this guideline, lenders tally properties, not loans (and not doors). Let's say you own your home with a mortgage and package up 9 single-family rentals under one commercial loan -- you may only have 2 loans, but you have 10 financed residential properties. 

If you want to preserve your conventional conforming loans for other transactions, I would suggest (if you've not already) forming an LLC, transferring ownership to the LLC, sign for the new commercial blanket mortgage as a member of the LLC.

A really finnicky underwriter might read the promissory note and, if you are personally obligated on the loan, still count the properties as part of your 10 max. In the real world, I've not seen underwriters split hairs in that way. 

As added insurance, I would recommend filing a separate tax return (probably a 1065 partnership return) for the LLC, even if it's a single-member and not technically required to file a tax return. You want to create as much of a separation between you and the LLC as possible.

When you apply for another residential loan for a rental or second home, you'll be able to show that the properties are owned by an LLC with financing in the name of the LLC and an underwriter should excluded from your 10 loan limit. 

You can read up on the actual guidelines HERE if you want further clarification.

 Good luck with your search for a good lending source!