Lots of Equity, but can't refi?

Question

I have 5 single family rental properties, all in the northeast part of Ft Worth, Tarrant County, TX. I bought number 5 this past summer, but the other 4 I've owned for several years. As are result, I have about 50% equity across all 5 properties (approx $300k). They are all traditional 30 year mortgages. I would love to use this equity to get involved in small apartment complexes. However, my mortgage broker said I can't refi them for an equity pull because of Fannie Mae restrictions. She said I could refi them into a commercial loan, but I think my cash flow would greatly suffer because of a shorter amortization timeframe. Thoughts? I've also heard that I could use the equity as collateral towards the purchase of a small apartment complex. Has anyone done this that can give more details? I don't want to sell these houses because they all cash flow at least $300-450/month.

Chris Mason · Answer

@Steve Sprowls, your current mortgage guy is correct that Fannie Mae will not allow this.Maybe you should find a mortgage guy that also offers Freddie Mac products? :)Freddie will let you cash out with up to six financed properties.

Mike Makkar · Answer

@Steve Sprowls, Congrats on building equity on your portfolio. $300k is pretty significant networth in RE. Couple of ideas,1. Go to your current lender, who 1st lien on your property, and try opening up a commercial line of credit. This way the same bank will have 2nd lien. This way, you may be able to unlock (600k (assume is the value) x 80% - 300k =) 180k LOC. Advantage to LOC is you get to use it only when you need to and thereby not too much holding costs to opening it up. There maybe be a an origination fee of .5% and appraisals to pledge it (try to negotiate lower fees)2. Refinance commercial with a 5yr TERM and 25 yr amortization. Your cash flow may suffer slightly, but if you do your math right and buy more cash-flowing properties, it will offset. You may even get some money back through the BRRR tactics.3. Pay-off the one house with the least unpaid balance. Having a property that is free and clear, will give you more flexibility; owner financing, 1st lien LOC etc.4. Combine #2 and #3. ie. don't refi all of the properties, refi the property which has had the highest appreciation and payoff the property where you have the highest equity. This way you could have no change in monthly debt service and yet have a free/clear property to go to any bank to do a fresh TERM loan or LOC5. Sell-off one of the properties, :) I'm sure you don't wanna do that- m

Kerry Baird · Answer

@Steve Sprowls, your post could have been written by me! I have a couple of houses in Tarrant County, but to the S. of Ft Worth. And a couple in Florida. But same story. As mentioned above, Freddie just allowed cash out to 6 properties, which is awesome. I'm in the middle of a similar quest for the Camelot of investing. You probably know this, but for those who don't, limit applications to a 2 week window. Inquiries within a 14 or 45 day stretch will be counted as one, depending on which scoring model is used. Here are my recent notes:I met with Aaron Chapman of Bighaus Chapman. He's on the site, so PM him. He's got resources for portfolio lending. He's been working with investors and understands that many of us want to "go wide" before we "go deep" by paying those loans off. PenFed doesn't have interest-only but they do 15 year HELOCs on investment properties up to 80% LTV.Navy Federal does interest only HELOC's on investment properties up to 70% LTV, but not in Texas...one often recommended but, sadly, one to eliminate.Regions, TX: Generally the maximum loan to value is up to 80% for a 1st or 2nd mortgage on a primary, secondary or investment property.A minimum $4,000 draw is required for Texas Home Equity Lines. The amount of the Line cannot exceed 50% of the fmv of the residence. The total indebtedness secured by the residence (including the Line) cannot exceed 80% of the fmv of the home. Inactivity fee and prepayment penalty not applicable to Lines secured by a Texas residence. Visa Platinum Access card is not available in Texas.Caliber Home. Caliber does in-house portfolio lending. Max LTV is 85% FICO 620, unlimited number of financed properties allowed with purchase of a primary residence. Purchase, rate/term and cash out. I haven’t found rates yet, but have a call in, and will aim to update.

Jordan Berry · Answer

Mike's post has some great advice. I would also look into refinancing them through a smaller regional bank in your area that keep their loans in-house and aren't dealing with Fannie/Freddie. You may still have to give up a little cash flow on your five properties but if you can find one that will work with you you'll be adding the cash flow of the apartment complex that you wouldn't otherwise have. It's definitely worth asking around.

Wendy Gomez · Answer

Steve Sprowls great post thank you very informative!!!! much success to you.