Bank is offering me a guidance line for rental properties

[Chris Adams]

I recently took on a 2nd bank to fund my buy and hold investments in SFR's. In my first meeting with the banker, I explained I had 1 home I was looking to finance that I owned outright, and I explained my plans to continue to acquire rental properties at the rate of 3/year. He offered finance the current SFR I was asking about. And then he suggested setting up a guidance line of credit for future properties.

I have had guidance lines for my new construction business, it simply meant they would finance construction of any pre sold contracts I had to build new homes for clients.

Now when it comes to having a guidance line to acquire buy and holds in a rental portfolio, I'm a bit puzzled as to what and how it will work. Could it be as simple as I bring him a property that meets a predetermined set of criteria and he converts it into a mtg?

This is a portfolio lender who gives me 5yr arms, with 2% caps @ 5.5% 20 yr amorts.

Is there a reason he offered me the guidance line rather than looking at each property on a case by case basis?

His initial thought was to set the guidance line up at $300k, most of my SFR's Run right around 100k ARV.

I am meeting with him about this on Wed and would like a better idea of exactly how this works and why I need this.

[Chris Adams]

Here is how this is playing out.

The bank is giving me a pre approved Mortgage Guidance Line. There are no fees involved in setting this up, and it is more of a guideline internally for the bank with my LLC.

The guidance line is for a pre determined amount of mortgages, initially it will be something in the $150k-$200k range to get started and can be increased over time as we build a relationship.

They way it will work is, there will be a pre determined set of criteria I have to meet with each property. I don't have the exact criteria yet, but its going to be along the lines of;

Max LTV 80%

DSCR of at least 1.20

1 year lease from tenant

The mtg amount can be for as many houses as we can get in the pre approved amount, 3 $50k properties or 1 $150k property. AS long as they meet the underwriting criteria.

I can also use this for flips if I choose, but there are some differences for flips, and I don't really need it for flips right now. Im funded pretty well for those.

Here is the great part of this.

This removes all of the stress and doubt of finding financing for my new SFRs when I acquire them. There is no seasoning period required on new properties and I can start turning my money faster. The faster I can turn my money the more deals I can get completed each year!

And the way this is being structured I will still be able to do equity cash outs without any headaches. On average I have been able to cash out around $10k of equity on each of my SFR's when I get them financed, but it was becoming a headache. My old bank had changed the rules and was only willing to finance 80% of hard cost despite LTV rate.

With this new deal in place I may finally be able to go full time in REI !