what to do after you've used up your ten fannie and freddy loans?

[Fred Stevenson]

So for those investors that have accumulated 20 + homes, I'm curious how you continued to get your financing after you used up your ten personal loans.  Did you start using commercial loans to buy your properties after your first ten?  I am almost at my limit, and I'm trying to plan for the continued expansion of my portfolio.  However, most commercial loans that I'm familiar with are usually come with a slightly higher rate that is fixed for five - seven years with a 20 year amortization schedule.  My fear is what happens once the fixed rate period ends?  It's hard for me to imagine that rates won't be much higher in six or seven years than where they are today?  If this is how most people are financing their investments to expand their portfolio what about the risk of having a short term fixed loan?  How are people mitigating this risk, and what are other alternatives onces I've hit my limit of ten personal loans? 

[David Dachtera]

@Fred Stevenson,

Looks like you found your answer - start buying in entities (LLCs), though implementing it will be a bit challenging since you're so far "behind the curve" at this point.

During the time you've been buying properties in your own name (MAJOR no-no!), you could have been building business credit in your entity structure. Now, you have to start from square one or, essentially, start over.

Lenders like to see businesses established at least two years, so start that clock!

Get some expert legal advice on how to build an entity structure. Here's what my investing group's tax and legal expert (a JD/CPA) teaches us:

You'll want your entity(-ies) to be owned by other entities, NOT by human persons. This affords the best isolation and asset protections ("Control everything, own nothing"), but still requires full insurance for maximum protection.

One way of doing that is to have a revocable trust with you as the beneficiary. Form an S-Corp as an operating company owned by the trust. The Trust and the S-Corp then form a multi-member LLC "holding company" which is also part owner of the S-Corp. When you achieve income from your holdings, it will "flow through" to the S-Corp and you can then pay yourself from the S-Corp using the 1:2 salary / dividend split to minimize your self-employment tax liability while still showing an income to prospective lenders for personal credit.

Then, begin building business credit in your S-Corp and LLC(s). I may put together a blog post on that based on the information I've been collecting this past year. There ARE ways for young entities to get some credit with no personal guarantee, but it's not cheap or easy

Anyway, that's where you want to go. Once your entities can buy properties on their own, start selling the properties you hold in your own name to your entities (puts DoS out of the picture). In five to eight years or so, you should be able to get to where you ought to be right now. 

So, be diligent and dedicated. You CAN fix this!

Hope this helps ...