Conventional Financing for Experienced Investors (Oxymoron?!)

[Blake Ramsey]

Early in 2020 my business partner and I had a goal to focus on maximizing our financing. To give a little context, we are buy and hold investors mostly in the Colorado Springs are. Earlier this year we were crossing 13 SFHs and were chugging along with mostly commercial loans because conventional options were no longer available (conventional terms are much better than commercial). I was certain my conventional days were over (to include buying a primary residence) and having listened to many of the bigger pocket’s podcasts, I hadn't heard of anyone provide prescriptive guidance for past this point. 

However, our focus on financing became THE only effort left when COVID hit as the local banks ran for the bunkers. Essentially, our acquisitions were at a stop. This killed us because interest rates were great, cash was on the sideline and deals were out there.

Through research we started learning that a portfolio loan with a cash out refinance would be ideal for a number of reasons:

1- Interest are historically low

2- 4 homes had a 15-year mortgage (great for a good interest rate but were killing cashflow)

3- Cash out- ability to pull out $264,000 to reinvest in more properties

4- 4.7% interest rate on a 4.7M loan

5- Non-recourse* 

In my opinion, 1-4 are a nice to have but number 5 was necessary for us to continue to scale. After closing the loan, cash was in the bank and all the properties were out of our name. My personal debt on my Credit Score was reduced from 2M+ down to a few thousand (I rent, own a paid off 1998 Toyota 4runner, and live well below my means).

Since that closing in October, the handcuffs have been released and our market has shifted. We have purchased 4 homes this month in Knoxville, TN (2 with cash and 2 with conventional financing). Currently we are in the process of financing the 2 with a 80/20 cash out refinance into a conventional loan.

I wanted to share this because although obvious to some, I didn't realize the power of a portfolio loan and the liberty it can give for your own personal credit score. The ability to move debt off my name will also allow us to scale now with amazing terms and in the future, i can still qualify for a personal home when I am ready with great financing.

Our current goal is to get 20 conventional purchases in FY21 (10 in each name) and do another portfolio loan. In parallel we look to explore syndications as a way to help friends that are interested and accelerate the effort.

Would love to hear feedback and hear of any other creative ways for experienced investors to get those financing terms that we got when we first started.

-Blake

*non-recourse moves the debt from your personal name to the business. This means if you were to ever default the bank can seize all the assets in the loan but cannot come after you personally.