Single Family Rentals at 24-32% Cap Rates

[Joe Colasuonno]

I got into real estate investing in 2008-2009 after selling a business I had started in college for about 50k. My father was a builder for 20 years, so I've always been around real estate, but up until then neither he nor I had really acted as a landlord full time. We pooled our money and our first property was a 30 unit foreclosure in a depressed area, about 50% occupied. We closed on it using hard money at around 12% interest. A year later we took in a partner with good banking relationships and was able to refinance the property at 4.8% and cash out our entire initial investment plus some extra cash. Over the past 3 years we have grown our portfolio to just under 300 units, with about 260 of them located in Allentown, and the rest scattered around NJ.

I'm a numbers guy, and recently we purchased a few single family homes in the area for between 10-15k each. The first one we bought for 11k, put 5k into it, and it is currently rented at 925/month by a Section 8 tenant who pays all utilities. My NOI is around 650/month, placing the investment at a 48% Cap Rate, which is essentially unheard of in most places. The model is replicable in this area specifically, and I have since purchased an additional 5 single family homes. I have noticed that I make more money per unit per month than I do with my multifamily investments in the same area, while spending approximately the same per unit to purchase and fix up.

The model I have formed to stick to is as follows: Total investment under 25k per home (including closing costs, purchase price, and renovations), NOI over 500/month. If the property fits that model, it is a 24% cap, if it either costs less or makes more per month, the cap rate increases accordingly.

My issue is that I am having trouble finding banks or lenders who are willing to lend money on these properties. The combination of the size of the loan with the fact that a lot of lenders steer away from lending on single family rental property put me in a difficult situation. Does anyone have any advice as to how I can refinance these properties once they are preforming so that i can purchase and replicate the model more frequently?