I am at the point where I need private money for my term loans?

Question

I have 24 commercial loans on single family rentals spread across 3 banks. Each bank seems to have found their appetite with me due to my total loan numbers getting high. I called about 40 small banks in Ohio just to find these 3 so I am not sure I have many more options on the bank funding.

Does this mean I need to source private money for refinancing my rentals? I am interested in something like a 20 year term loan - what rates would I be looking at on the private side?

Most of my recent deals are appraising around 130K and I am refinancing at 80K so I don't think LTV will be an issue. I hate to pay the higher rates but I need to continue to grow.

David Zheng · Answer

great thread. definitely following. I'm sure you have thought of this, but why not pay one off, leverage another, and repeat. I'm sure all your commercial loans are balloons anyways so it might help that you never reach that moment the rate starts to vary. With that many properties, I'd imagine you are making good enough cashflow that you can do this? or is it that deals are coming in that hot and heavy, you don't have capital to spare on paying one off

Jay Hinrichs · Answer

one thought is refi with Colony or Blackstone  pay off all your bank notes.. then reset with your bank notes back up to were you are today... when you get to your lending limit refi with C or B again and rinse repeat

Colony and Blackstone are dog dough in underwriting but they do give great rates and fully term loans as a portfolio lender.. to get these great rates they want to make sure they are not going to have default scenarios ergo very very tough on underwriting.. But if you qualify for bank you will no doubt qualify for these guys.. just have to determine if you want to jump through all the hoops

Kevin Romines · Answer

@Adam Craig I understand your pain. However if for no other reason, I would structure your companies and the deals so you can go conventional if you should ever need to.  The key is to do them in a corporation or a Sub S versus an LLC. Fannie Mae says that if you own more than 25% of an LLC and have commercial loans on the properties, it doesn't matter and they must be counted in the 10 financed property rule. However if you hold them in a corp. or Sub S corp and they are financed in the name of the company, then you don't have to count them in the 10 financed property rule.

I specifically like to work with investors, I have created a chain of lending that gets you up to 100% purchase / 100% rehab for the hard money when you need it. I will also do the conventional take out loans and when needed move your portfolio on to a commercial lender to clear the slate on the conventional side of things, thereby allowing you to purchase and rehab as many buy and holds or flips as you can handle with virtually no limits.  See the Fannie Mae rules below!!!

Hi Kevin,

See below from the reference guide for FNMA multiple financed properties in MyKey.  If they own 25% or more of the LLC or partnership then it would count.

Type of Property Ownership to include in Financed Property Count:

 Joint ownership of residential real estate. (This is considered to be the same as total ownership of an individual property).

Note: Other properties owned or financed jointly by the borrower and co-borrower are only counted once.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation; however, the financing is in the name of the borrower.

 Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property).

 Ownership of property that is held in the name of a limited liability company (LLC) or partnership where the borrower(s) have

an individual or combined ownership in the LLC or partnership of 25% or more, regardless of the entity (or borrower) that is the

obligor on the mortgage.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the borrower.

 Ownership of a manufactured home and the land on which it is situated that is titled as real property

Type of Property Ownership NOT to include in Financed Property Count:

 Ownership of commercial real estate.

 Ownership of a multifamily property consisting of more than four dwelling units.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation and the financing is in the name of the corporation or S-corporation.

 Ownership in a timeshare.

 Ownership of a vacant (residential) lot.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the LLC or partnership.

 Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home).

Edward B. · Answer

@Adam Craig,

I would suggest checking out B2R, Lima One Capital, Colony Finance, and the like. There are lots of companies looking to fill the gap banks have left between residential mortgages and commercial mortgages. Better terms (like 30 year fixed, no balloon) but worse rates (probably 1%-2% higher than a commercial loan). The cost of capital is higher, but the terms are more stable and it may allow you to keep trucking if you qualify. I'm not vouching for any of the above although I have used one. They are just names that I have seen around.

Adam Craig · Answer

Thats amazing you mentioned this right now. I have been waiting on a call from my conventional lender to see if they could do the deal and he just called and said they cant because I have too many properties! I told him about the deal they did last fall when I owned 18 properties and he is going to follow up with his underwriter to see what the difference was. I think they missed it or didnt look at my 2015 returns close enough.

Kevin Romines · Answer

My guess is that the key was they didn't show on the credit report?

But if you have signed the commercial loan as a recourse loan, or if the conventional lender is  made aware of your properties that are in the LLC that you own more then 25% of, they should be counting them. Where this will be an issue for them is if an audit is done after the fact, that lender could be made to buy back the loans from Fannie Mae, which gets into a big issue for them at that point?

Adam Craig · Answer

Thats surprising to hear. My conventional lender must not understand that because when I had 18 financed properties on the commercial side they gave me a conventional loan because only 3 properties were on my credit report. And I own 100% of the LLC.

I would love to hear about your rehab financing and or commercial loans. PM sent

Adam Craig · Answer

I agree - and I am having my conventional lender review my updated file now to make sure they can do the deal. But incase they cannot I am sourcing other options and ideally looking for a long term solution.

Wiping my slate clean would free me up but I have most of those loans under 5% so it would cost a lot to blanket those no?

Stephanie P. · Answer

Conventional is always going to be cheaper than commercial, but there are some awesome products out there right now on the commercial side for you to choose from.

Not sure I would go the Lima One, B2R etc... route just yet.  There are other options to consider that have lower rates and fees and like Kevin R from Guild said, clearing the slate may be a good idea and going conventional just to get the better rates.  A little hassle now may be worth more money in your pocket over time.

Just my two cents.

Stephanie

Adam Craig · Answer

Right now I only have 3 conventional loans - all the rest are commercial. So in theory I could get 7 more.

After going on the commercial loan side I would hate to back to conventional loan because of the extra headaches. Last time I closed a loan the list of items they needed before close was insane due to the complexity of both of my businesses. It took nearly 50 days to close the loan.

The last commercial loan I did was a breeze and closed fast. So with that being said I am for a solution on the commercial loan side.

I am at the point where I need private money for my term loans?

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