My story & 10 homes on conventional mortgage . Best way to 11th?

Question

My Journey as an Investor:
I started investing in buy and hold properties in May of 2014. Triggered by the loss of my 80 year old mother early that year, a lady with very minimum formal education- she had managed to bring up her 5 kids, provided for their college education and instilled them with a high values.

Coping with the loss of her passing, I wondered , what had made her hold her head high and never ask anyone for monetary help even after we were adults and earning well. Our dad had passed away when she was 48 years old and she had to rely only on herself.
I realized her secret- she had diligently invested in RE in India over a period of time, whatever money she could save. These had appreciated over the years. She sold small parcels as big expenses had come up during our growing years, never asking anyone for help.

I am a Realtor by profession and had NOT, till then,  invested in even one home other than our primary.

A feeling that if mom could do it, without an education, knowing simple maths, what is holding me back. There are always going to be unknowns.

Today, what started in May of 2014, I hold with my husband 10 homes, each making very decent income.

Discovered BP in 2017 and realized there are so many of us on the same path and there is so much collective experience  and wisdom here!

It is true: When the student is ready, the teacher will appear.

*********************

My goal this year is to buy two more investment homes.

Here is my dilemma and am reaching out to you all for help.

All of these 10 mortgaged properties are on conventional loans. Reached the max of 10 and have to go with some form of creative financing to increase my buy and hold numbers.

Two of these are up soon for refi. Both  have appreciated well and I can cash out refinance to get a 60K out of each, ( 30 years fixed at 4.9%). They were financed at 3.25% and 3.5% ARM earlier)

Trying to work a couple of scenarios here:

1. Cash out both and go with a private money lender to buy the 11th/12th. ( 6%-6.5% interest rate with PML)

2. Pay one down and refinance the other and buy the 11th investment with a conventional loan. ( don't have enough liquid cash to pay down both) ( conventional at 4.8% 30 years fixed)

Objective: Peace of mind that one is paid down and we can snowball all income from it to paydown another.

3. Keep the refinance, cash-out refi independent of the buying the #11th. Buy 11th with pvt. money lender.

What would you do in such a scenario?

Does anyone paydown the investment home even when there is a lot of equity built into it and not cash out refi?

Any words of wisdom from your experience is highly appreciated.

My Risk Tolerance level is on a scale of 1-10 at about 6.5 :) Husbands is 4.5%. :) Never worked with any other mortgage other than conventional fannie/ freddie.And so hesitate..Thanks much for reading through.

And so hesitate..

Thanks much for reading through.

Hema Dasarathy · Answer

Update: All your fantastic ideas put to work in the last 6 months!

Happy to share!  Have bought 3 more homes!!!

How we did this: Paid one down. Phew! Seriously felt so good!

This freed up a mortgage on each of our names. ( the max of 10 financed properties limit)
Bought the 11th financing it on my name and the 12th financed by husband.
Hit the 10 financed property each limit again.

Cash-out refinance-d the property which was coming up on its 5 year ARM on my name, freeing husband from it.

And now got the 13th property financed by him!So Yaa..3 done in the last few months!

Game plan is to pay down one more this year and  save save save! Buy our 14th & 15th by 2021!Wish us luck!

Kevin Romines · Answer

Ah, the problem that most aspiring investors hope to get to, 10 financed properties and what comes next? Below I will line out some of your options. I'm sure others will chime in with additional info.

1) 10 loans each - You are married, each person can have up to 10 financed properties in their own name. So if some are due for a refinance, take out the loan in one of your names, that will free the other person up from having a financed property and they then can go buy more. That will cap you out at 20 properties, 10 in each persons name. Both of you can be on title if you wish, but only one on the loan.

2) Owner Occupied - There is no limit on the number of financed properties if you are buying an owner occupied home. So if this scenario will work with your plans, go buy a new owner occupied home and turn the existing owner occupied into a rental. You can do this unlimited times, however your note and deed of trust requires you to live in owner occupied homes for at least 1 year prior to making it a rental. So theoretically, you could buy a new owner occupied home once a year and turn the previous owner occupied home into a rental and have as many Fannie Mae loans as you could ever want?

3) NON-QM / Portfolio loans - There are many Non-QM or Portfolio loans that have either much higher limits on the number of financed properties you can have and some of these loans have no limits. They will only limit the number of loans that investor will do with a particular borrower. However, there are many investors with these programs, so you could buy as many properties as you might want? The rates are a little higher than conventional, but better than commercial and not anywhere close to hard money. To get access to these loans, you need to work with a broker or a banker. Banks and credit unions don't have these loans. Not sure who in your area is closing these loans, call the title companies, they know, they close them for the lenders.

4) Blanket loans - You can get commercial blanket loans on as few as 3-7 properties or more. Blanket loans typically have a minimum # of properties the loan must cover in order to make the overall loan sizable enough that its worth it to the commercial investor/lender.

5) Commercial loans - They have higher rates and are set up with 3,5,7,10 year calls. So plan to refinance every so many years?

I hope this helps?

Account Closed · Answer

One option if you can pull that much cash out of your current holdings (assuming it is enough for 20-25% down in your area) is to form an LLC and borrow from a banks commercial lending dept.

Commercial mortgage loans for investment properties held in an LLC don't count toward your "limit" but the bank will want 20% down (in my experience). There are also portfolio lenders online like Finance Company of America and Visio Loans. Ive never used them because in my area property values are too low so they dont meet their minimum loan amount.

Great story and good luck!!

Caleb Heimsoth · Answer

@Hema Dasarathy. Congrats on your success.  Here’s my advice that’s usually unpopular on BP.  Pay off one of your mortgages.  You can pay it off with your money or refinance one your other rentals to pay off another one

Benjamin O'Brien · Answer

@Hema Dasarathy

When we reached 10 properties we focused on paying off one before getting another mortgage. We have done this 4 times and so have 4 homes free and clear and 10 mortgages. As others have noted, your returns on a paid off home are less. We have also noticed that the interest rates are climbing. Properties still cashflow, but margins are tightening. If we didn't take the time to pay down properties and got more creative with financing we may have been able to secure more homes at lower interest rates. We are now working on paying off house number 5. While this may not make sense for some, we are comfortable with it and will probably continue this as long as homes cashflow. Also, we are paying off the higher interest rate homes. Best of luck.

Kevin Romines · Answer

@Hema Dasarathy Small banks will not be able to get you Non-QM / Portfolio loans. They will push you to their commercial loans which would not be the best choice. If you are going to go away from conventional (Fannie/Freddie) I would recommend going with Non-QM/Portfolio loans next. You will only find these programs with a broker or a mortgage banker. You wont find them with the banks and credit unions.

I might consider paying off a house if it made sense to my investing strategy, but if you need the cash for additional investments, you might leave the leverage on the deals or even increase the leverage for more cash to buy many more?

It's all a matter of how big do you want to get? Do you get economies of scale by growing more? Are you winding down and just want to hold them free and clear in the near future? It just depends on your plans.

Stephanie Medellin · Answer

@Hema Dasarathy  What a great story and that's very impressive what your Mom accomplished.

You already received some good suggestions, especially refinancing the properties into only one person's name assuming you can qualify individually.

Considering you have an ARM on two of the properties, it makes sense to do a cash out refinance and secure a fixed rate for the long term.  Remember, once you've acquired that 11th financed property, any other refinances you do on your existing properties (1-10) will not be able to obtain conventional financing.

Max T. · Answer

buy new with the loan in just spouse name

Hema Dasarathy · Answer

Thank you @Scott D Burrows &  @Kevin Romines! Such great inputs! Absolutely helpful!!!

After reading both your inputs, have sent a note to my lender to check if he can refi both homes which are up for refi,  on my name releasing my husband's to buy two more on conventional on his names. Did not realize earlier that it was 10 on each of our names.

Let me check more on the small banks too. The ones I spoke either did not know what I was talking about or had a 10 year fixed amortization, which will put too much pressure on me. I guess I am talking to the wrong banks..will explore more.

Ditech has come back to me with an expanded criteria prog loan with a 5.75%, 30 years fixed, I believe they have rolled it out last week.

Would you consider paying down a house? Pros  & cons?

My story & 10 homes on conventional mortgage . Best way to 11th?

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