Is refinancing rentals with LendingOne my best strategy?

Question

I am a BRRRR guy-  I have 27 rentals and counting. About 20 of them are financed through local commercial banks. Several years ago I called 30+ banks in Ohio to find 3 lenders who did my first 20 deals on a commercial loans. Since then my buying has been too fast for them to continue lending. These commercial lenders wanted to see my recent purchases season to see how they perform but the problem is I always have new properties coming in so the portfolio is never stable enough for them to feel comfortable enough to keep refinancing new properties.

My alternatives have been the national lenders - limaone/LendingOne/ect... I checked all of them out and settled on LendingOne who seemed to have the best rates/fees though they are still terrible and expensive compared to the banks that I miss so much.

Recent deal was 8/1 Arm at 6.75 over 30 years. $2700 closing costs on a 90K refinance - :(

Is this really that bad? Its nice to know I can continue to grow my business even if the lending side has become more expensive for me.

How are you refinancing rentals after you surpass the 10 conventional?

Chris Mason · Answer

This is going to fly in the face of biggerpockets.com culture, and it's outright heresy for a lender to say it, but have you considered slowing down and consolidating? Buying additional real estate is one way to increase cashflow, another way is to simply pay off mortgages. With that much rapid growth, I can't imagine there isn't also some other optimizing that could be done - renovating kitchens between tenants to maximize rent, that sort of thing.

Scott D Burrows · Answer

@Adam Craig

Definitely a question for those in the mortgage field, i.e. @Andrew Postell or @Chris Mason .

However, here are a few options, if I think out loud:

• Package ten houses together (maybe the houses you have had the longest?) and get one "blanket loan"? Package loan? 
• Another strategy could be to develop a very clearly persona financial statement showing your specific strategies to the bankers, so they will feel more comfortable with their perceived "risk". Obviously, with this many houses, you are doing something right. In addition, many lenders will accept more risk if you can show an account with reserves and show how you believe that you can scale without disrupting your current strategical operations. Really, a good, repeatable and clear plan should help you the most (take a look at companies on the stock market and look through a few descriptions, balance sheets, etc). If you can make your plan look like that, with trackable, verifiable numbers, I don't see why a banker would turn you down, if you talk to enough. 
• Another option, start paying off one at a time with all the cash flow from the others and create verifiable equity and show what you can do with your cash flow. In other words, maybe create an impression of stability and with a couple "paid-off" properties, you could always offer that as collateral to additional refinancing that you need to expand and scale.

Anyways, good luck with everything. Definitely a good problem to have.

Overall, just create at least the impression of cash flow and excess cash to look more stable on paper. Just let the accounts swell and become cash rich in the short term to prove that you have the foundation to pay off debts if a few go vacant at the same time.

Sincerely,

Scott

Chris Mason · Answer

You grew fast enough upfront that I suspect a possible retirement is closer than you think, if you were to start the consolidation phase now. Up to you. Good luck. :)

Adam Craig · Answer

I am fairly young - 31 years old and time is on my side so I am all about leveraging, thats partly why I got into real estate. To me the idea of paying off one of my properties is like speaking another language. I am not trying to go all out and leverage to the max but if I had more then 50% loan to equity in any of my houses I would sell or refinance and reinvest that cash to earn more then what I was borrowing it at.

Also - since I use the BRRRR strategy, nearly all of my properties are remodeled. So 80% of them are at premium rents already.

Brian Tran · Answer

You know when you get small loan is hard with local bank . And many mortgage lender charge higher fee . Why not just combine all sell it and down payment for big apartment. Bank won’t look at your financial anymore they focus on that apartment can generate income or not . When small loan hard to get is the time to get bigger loan . But still be careful with new strategies. Bigger make you richer quicker but still can turn you down . Good luck

Caleb Heimsoth · Answer

@Adam Craig. Hope the party doesn’t end during the next recession with all that debt and likely balloon payments you’ll have over time.

You can’t always refinance.  If you’re 31 you probably have done all of this post last recession.  Which is great since that was a great buying time period.

I’m with Chris, just pay some off or slow down for 6 months.  It won’t be the end of the world.  Growth for the sake of growth isn’t always a good thing.

Adam Craig · Answer

If its a few months or even 6 I can do that. I just assumed it would be a year to get tax records to catch up. But you have at least convinced me to reach out to them for some clarification.

Peter Tverdov · Answer

Seeing that you're in the mid-west and own 20+ houses I am going to guess most of these are very inexpensive and small SFH (purchase price under 100k). I agree with @Chris Mason - sell a handful and roll it into a larger property. Do a 1031. You'll see it's much easier on the management side of things. Quality over quantity my man. I own a fraction of what you own but I would guess the cash flow is the same or larger and I don't have 30 roofs to worry about.

Adam Craig · Answer

Just called them - they dont do anything long term. I am getting mine amortized over 20 and 30 years he was closer to 7

Dylan M. Davis · Answer

Need a good private option. Those are big shops that don't know how to close a constructive DSCR file quickly. The prime rate is 7.5%. The floor for 30 year fixed (5/1 ARM included) is about 7.25%. Would love to talk about what you're working on.. Not worried about DTI or income.

Is refinancing rentals with LendingOne my best strategy?

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