What loans do people use to buy packages of SFH's and Duplexes?

Question

I'm a single-family or duplex type investor.  I'm interested in expanding faster but I have no interest in larger multi-family buildings.  I like the economies of scale but not the actual large buildings and their unique problems.  But I feel like maybe purchasing a package of properties in the 5-15 property range might be a quicker way to go, especially if all close together in a neighborhood that I already like...

BUT... what kind of financing do you get for this?  Commercial loans I assume?  Would a package of properties qualify for a Fannie or Freddie multifamily loan, if they were all already stabilized? I'm assuming not... so are these mostly financed through commercial portfolio loans from local banks?  I see packages of multiple properties up on the MLS all the time but I've never heard anyone explain from experience how they financed a package of rentals...  I know that seller financing is an option too, but I want to know what the conventional options are.  Thanks, would love to hear from anyone who has financed a package of rentals!

I'm in the KCMO (primarily) and Indy markets...

Eric Johnson · Answer

@Adam Sankowski This would be a commercial product around 75% LTV on purchases (70% LTV on cash out refis). These are underwritten like CMBS loan, fnma/fhmlc would not buy a loan like this, you are correct on that.

Wale Lawal · Answer

I have sent you a PM. Thank you

Richard Helppie-Schmieder · Answer

@Wale Lawal I see you are from Houston. If your client is an experienced investor, I think one of our banks we have used in the past actually operates in Houston as well as DFW where I am from and can share his contact if you send me a PM. They just need to see that this is not the first investment property your client is purchasing.

Adam Sankowski · Answer

Hey thanks everyone for all of the info, much appreciated!

Wale Lawal · Answer

@Adam Sankowski what you are looking for is a blanket loan or portfolio loan. This are very hard to find because of the level of risk involved for the lender. As @Richard Helppie-Schmieder said call several banks and try to build relationship first before asking. This will make the lender comfortable to work with you.

I have a client looking for this kind of loan and it's been a challenge for him also. Seller Finance is the easiest route if that option is available to you.

Goodluck

Salvatore Lentini · Answer

@Adam Sankowski - the downside to purchasing properties in bundles is the lack of flexibility in your exit strategy.  If you buy all of these under one loan you run into difficulties if you decide to refi or sell off individual ones.  Lender can hold back some of the money from the sale or refi.  Your monthly payment may even stay the same even after selling off some properties.  Of course you'd then be paying down more principal but bottom line is, you'd be paying the same amount per month for your mortgage but bringing in less rental revenue.  Not fun.  I did a blanket loan once and most likely wouldn't do it again.

Marco G. · Answer

@Adam Sankowski

I purchased a package of duplexes a few years ago and did traditional financing with 25% down. It took a little longer for underwriting to juggle it all, but it’s doable. I got better terms (lower fixed rate for 30yrs with no balloon and the necessary costs of a new loan in 5yrs) and lower costs than going portfolio loan, and retained the flexibility to offload the properties individually if needed.

Richard Helppie-Schmieder · Answer

@Adam Sankowski I have done deals like this before successfully using local banks (I am from Dallas). Typically, we are 15%-20% down with a 20yr-25yr amortization and 5 year balloon at Wall Street prime +1%. Banks also want to see a debt service coverage ratio of 1.2 or better. Our best deal had so much equity in the purchase that we got a 10% down loan and we have had other solid deals with 30 year amortizations even with a commercial loan.

A big part of this has really been showing previous experience, establishing a relationship and not asking for these terms on every deal, but being very selective. On my first commercial loan about 5 years ago I called 45 banks, 5 got back to me, 2 could do the loan. It is hard work, but you can start with a list and ask "do you do portfolio lending on residential real estate? I am interested in purchasing an investment property." Hope this helps! Happy hunting!

Eric Johnson · Answer

@Adam Sankowski for deals you can use an excel template. Shoot me an email I can provide it to you

Adam Sankowski · Answer

@Eric Johnson awesome thanks for the clarification! Any tips or tricks for presenting these deals to lenders? Do lenders like packages of residential properties or is it tough to find a lender? Thanks for the info!!

What loans do people use to buy packages of SFH's and Duplexes?

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