Take advantage of Fannie loans vs. using banks with no seasoning

Take advantage of Fannie loans vs. using banks with no seasoning

Investor · Columbus, OH · Member since 2015 · 70 posts · 30 votes

In terms of the BRRRR strategy, we know that Fannie / Freddie loans require a seasoning period of 6-12 months prior to doing a cash out refinance (4-10 loans max). This can certainly slow down the clip at which the investor gets his money back to reinvest. Portfolio lenders and commercial lenders that do no have a seasoning requirement nor a max number of loans, although their terms are not as desirable as Fannie / Freddie.

Here's my question: if the investor has not maxed out his Fannie / Freddie loan slots, is there any disadvantage to first dealing with a portfolio lender or commercial lender and conducting many BRRRRs in a short amount of time, taking that approach as far as you can, and then moving on to conventional Fannie / Freddie loans? Wouldn't this approach help you scale up the number of rental properties much faster, by avoiding the Fannie / Freddie roadblocks than can slow you down? 

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  • Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
    9y

    There is nothing that says you have to go Fannie/Freddie first and then move on to commercial loans. You can do it in any order you like. Many people (including me) invest with commercial loans right from the start. RE is a business to me and I don't see why I should personally own the properties (although I do personally guarantee the loans). And you are right, if you have the capital, going commercial does allow you to scale up much more quickly since there is no limit on loans and there is nothing like DTI that stands in the way.

    The downside, of course, is the less favorable loan terms (higher interest rates, shorter amortizations, ARMs rather than long-term fixed rates).

  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    9y

    Just remember the Fannie cap on mortgaged properties includes All mortgaged properties, not just those with Fannie loans.

  • George DespotopoulosBusiness Member
    Lender · New York, NY · Member since 2016 · 936 posts · 287 votes
    9y

    Well one issue is that many portfolio / commercial lenders require a seasoning period. If you can find one that does not and they come through on this, then great. But, from my experience both will want at least some seasoning or risk getting burned, especially with their own investors.

    You could scale up but then you're going to have an issue with debt-to-income being too high for conventional lenders and also the fact that you're going to have a few loans outstanding. Both of these things throw banks off.

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  • Investor · Columbus, OH · Member since 2015 · 70 posts · 30 votes
    9y

    Thanks for the responses. @Wayne Brooksthat's a great point. I didn't know that the fannie cap considers all properties. 

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