How to buy more investment properties?

Question

Hello BP family,

I would like to know the best way to move forward. We presently own 6 rental properties (townhomes) and have done fairly well keeping them rented for the past 4 years. Now we would like to buy more units but not really sure how to proceed. we spent all of our capital purchasing the 6 units.

1) we need to purchase a primary home which will cost around 300k

2) we are mortgage free on the 6 units (worth 45k each)

3) we would like to purchase 12+ units (cost per unit 50k)

So my question is what is the best way to accomplish our goal? Should we take mortgages the properties we have now?

I was wondering if we could possibly apply for a $600k and mortgage the rental for the 20% down payment?

Then some how we could take the 600k and purchase additional units. The primary house purchase would be separate from the investment deal. So should we try to work the investment deal prior to purchasing the primary home? or purchase the primary first?

Open to any suggestion

Thanks in advance.

Charlie Miller · Answer

Can you get HELOCs on the town houses that are paid off? Use this money to cash purchase or for down payment.

Pete T. · Answer

@Ron Climber- are you really going to get better terms from seller financing than what is available at the Bank? I doubt it, even w/ the fees you mentioned. Also, when you accept seller financing, arent you defeating the purpose of why you originally bought the property?

Cedrick Gervin · Answer

Cedrick Gervin · Answer

Thanks for all the wonderful advise, I'm loving this site. Mr. Ron Climer I would like to know why would someone hold the mortgage when they can rent the unit for more? The example you gave was $60k property at 5 % interest with payment equals $500. In the Atlanta market I'm getting $800 monthly on a 40k investment renting. I appreciate you sharing you knowledge.

Account Closed · Answer

The best financing is seller financing. Find a seller that will hold a mortgage. How do you do that? When you go look at a property to buy, make your first question be,"What is the price?" . Let your second question be,"Will you hold a mortgage?" If the answer to that is NO, unless this is the bargain of the century, keep looking. Thirty five per cent of the houses in America are owned free and clear. Why wouldn't the seller want to hold a mortgage? Read my article right here on BP about why they should. http://www.biggerpockets.com/blogs/3840/blog_posts/27179-seven-reasons-a-seller-should-hold-a-mortgage Make it your policy that if the seller won't hold a mortgage and it is not the deal of the century, keep looking. Once you have this mindset, finding owners that will hold financing is easy. We all know that the financing is the best part of any real estate deal. If you are getting your financing at the B A N K , this is like buying retail. I have another article that you might want to read about owner finance. http://ronclimer.blogspot.com/2013/04/seven-reasons-why-i-love-owner-financing.html Did you go read that article? The first sentence is "Owner finance is easy." I like easy. The first sentence of the second paragraph says," you can change the terms later". Can you do that with institutional financing? NO Find an owner that will finance your next house with little or no money down. That is the best financing there is.

David Krulac · Answer

@Cedrick Gervin Another alternative after the personal mortgage would be one blanket mortgage on the 18 rental properties.

Albert Bui · Answer

I would recommend to utilize a 5% down conventional loan on the primary home since conventional financing has the least effective cost as the mortgage insurance is not as high. This assumes your credit is sufficient to make sure you can utilize conventional financing effectively otherwise FHA for the primary home will allow the most leverage at 96.5% loan however FHA adds 1.75% of your loan that gets financed into your loan and an additional 1.35% annual mortgage insurance. If your fico scores are 680 or higher conventional financing will generally be less expensive that way you can manage your cashflow more effectively month to month. As for the rentals you can cash out up to the 4th mortgage 75-80% of the market value of those units however it may not be so prudent to do so because if the value is only 50k 80% of that is 40k then paying 2-3 k to close each one can be very expensive. There are local banks that may be able to do a cross collateral loan which is one larger loan that liens all your rentals together. However very specific advice on your scenario can vary depending on your unique scenario, financial statement, credit, and etc Cash out with conventional financing on financed properties number 5-10 can only be done if the subject property for which you are attempting to cash out was purchased with all cash from your own sources and the cash out is applied for and completed in under 6 months. If the property is your 5th to 10th financed residential property and you didn't buy it with all cash you will not be able to cash out/ obtain a refinance mortgage against those rentals. The alternative is to find portfolio lenders who will offer loans that have no limits to the number of financed properties. Here in CA there are a few who can do this however the terms are usually 3/1 and 5/1 arm around 5.25-5.75% rates but this can vary from bank to bank. Best of luck,

Albert Bui · Answer

I would recommend to utilize a 5% down conventional loan on the primary home since conventional financing has the least effective cost as the mortgage insurance is not as high. This assumes your credit is sufficient to make sure you can utilize conventional financing effectively otherwise FHA for the primary home will allow the most leverage at 96.5% loan however FHA adds 1.75% of your loan that gets financed into your loan and an additional 1.35% annual mortgage insurance. If your fico scores are 680 or higher conventional financing will generally be less expensive that way you can manage your cashflow more effectively month to month. As for the rentals you can cash out up to the 4th mortgage 75-80% of the market value of those units however it may not be so prudent to do so because if the value is only 50k 80% of that is 40k then paying 2-3 k to close each one can be very expensive. There are local banks that may be able to do a cross collateral loan which is one larger loan that liens all your rentals together. However very specific advice on your scenario can vary depending on your unique scenario, financial statement, credit, and etc

David Krulac · Answer

@Cedrick Gervin The first thing that I would do would be to buy the personal residence and finance it to the hilt, like maybe 5% down and 95% financed fixed for 30 years. The second thing that I would do is to try and line up financing for the 12 unit purchase. (fixed rate 30 years also if possible) And lastly and only if you re-fi the 6 T-Hs. It has been my experience that the appraisals for re-fis are how shall we say it less generous than arms lenght purchase transactions. Perhaps that is not the same experience as others.

Matt Devincenzo · Answer

Remember this is only for Fannie/Freddie loans, and they allow up to 10 the first 4 are just easier and can be cash out refinances. So you can still get as many loans as you would need, you just would have to use commercial/portfolio loans at some point. One possible way of doing this would be to talk to a local bank/CU about a "blanket loan". That would be a loan against several properties. So you could set it up initially with your 6 rentals and use the cash to purchase and get several more rented. Then either just keep just the 6 mortgaged and the other cash purchases, or roll them into the blanket loan to continue buying more until you reach your goal/comfort level.