Purchase portfolio of SFRs

[Brian Blahous]

Has anyone had luck purchasing a portfolio of currently rented single family homes?  I am doing a 1031 out of a property and looking to offer on a portfolio of 12 SFRs, but running into roadblocks on financing.  The average price of the properties are less than $100,000, which seems to be causing an issue with commercial lenders. 

Thanks!

[Kevin Romines]

Yes, most lenders have minimum loan amounts for each individual home due to laws that restrict what they can charge for fees on the loan as a percentage of the loan amount. To be specific, the law states that an investor can not be charged more that 5% in Origination, Processing, Underwriting and discount points. Its the discount points, especially right now, that is causing the problem. 

Lenders get their rates from the investors that will own the loan. The fed tells investors what rates they are allowed to charge every time they raise the rates. The investor has costs, so that is built in to the rate via discount points when passed on to the retail arm. The retail arm has costs that are shown out in the fees. 

A loan of less than $100,000 makes it near impossible these days to squeeze the limited fees the retail lender charges for origination, processing and underwriting in, because the discount points are so high on these loans. So when you have a individual loan amount less that $100,000 it becomes near impossible to get all fees and discount points in the loan at 5% or less, mostly because of the discount points required on the loan. 

So what is the next logical question (I recently asked this of my lock dept.) Why cant the investors give us higher rates with less discount points so its easier to be in compliance with the 5% rule? It is because the Fed controls what the range of interest rates that the investors can charge. The fed wont allow the higher rates with lower discount points to be offered. 

A BS move by our Fed and Administration, but now you know!!! So our loans require each property in the portfolio be worth at least $125,000 to get a minimum loan amount of $100,000. Most lenders are in that same boat. 

I hope this helps.