Home Stager · Sussex, WI · Member since 2012 · 170 posts · 64 votes
I recently attended a seminar in Austin hosted by a KW broker, AMP Lending (portfolio lender), and Longhorn Lending (hard money lender), titled: Rapid Acquisition - how to finance 10 homes in under 10 months. The basic plan is to finance the purchase and repairs with hard money; refinance out to conventional; rinse / repeat. The lender would include net rental cash flow as part of the income qualification for each subsequent loan to build the portfolio.
My questions are: is this standard practice? Do all or most lenders use this method? Has anyone worked with AMP Lending, or know of them? Would love to hear from clients for references.
Finally, would anyone have a pro-forma template for a financing scenario to acquire multiple single family rentals and/or flips that would factor in all qualification criteria, i.e., DTI, reserves, DSCR, NOI, etc.?
All advice and suggestions appreciated! Thanks, BP!
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
I'm in Illinois so I don't know those lenders. But the business model is exactly what I've done.
My first deal, I bought the "normal" way. Put down my 30% and paid the rehab out of pocket. Went to do a cash out refi and had to beg the bank (it was a local bank)- literally - to do the loan. I eventually talked them into it by offering to put 10k into a cd with them. When i closed they never even required the cd.
But that was the last time I did that. From then on, i've bought every single deal with a hard money loan - one where I could roll the purchase and rehab into the total loan. Then I refi'd (rate and term refi) into a conventional loan and, once I went over my fannie mae limit, into a commercial loan with a local bank (i.e portfolio lender).
As long as you can get your purchase PLUS rehab to come in under 70% of the ARV, then the only thing you end up coming out of pocket is the lender's points/fees and the closing costs. And you get the property tax credit in the purchase closing that helps offset some of that.
Essentially, you can take down a house for 5 or 6k to help preserve your capital.
To me, it is well worth paying the points/fees and the 4 or 5 months of higher interest to help me preserve my capital. As long as I'm getting a good enough deal, I don't really care about the additional 5 or 6k. Thats essentially 30 to 35 bucks a month less in profit to help me preserve coming out of pocket about 30 to 40k for a typical deal (i.e. 30% down plus 15 to 20k rehab).
If you are looking to grow a portfolio and/or you don't have that much capital, then I strongly recommend you consider this model. The one obvious trick is that you're limited a bit because you have to really cherry pick your deals so that your purchase/rehab come in at 70% or better.
Investor · Austin, TX · Member since 2013 · 113 posts · 30 votes
11y
I've done a couple of conventional loans with AMP Lending (two cash-out refis). I've had mostly good experiences with them and was intending to use them on some deals that fell through for reasons unrelated to them. I have no experience with this fast acquisition strategy.
I used this strategy all the time and infact i use both longhorn and AMP lending. It works but there are some tricks to maximize the returns for investors. Both are great hard money and conventional lenders. Would recommend them.
Did AMP tell if you how long the seasoning requirement is? Are the loans 5-10 year balloons? Decent rates? Let me know what you find please if youre speaking with them. Ive been working with another portfolio lender here in Austin but I dont like their rates. I think they are too high and my income/credit should be getting the best rates.
They didn't go into detail on specific loan rates/terms; really more discussion about finance tactics for multiple properties. It's probably best for you to contact them directly for your specific needs. Let me know if you need contact info.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
I'm in Illinois so I don't know those lenders. But the business model is exactly what I've done.
My first deal, I bought the "normal" way. Put down my 30% and paid the rehab out of pocket. Went to do a cash out refi and had to beg the bank (it was a local bank)- literally - to do the loan. I eventually talked them into it by offering to put 10k into a cd with them. When i closed they never even required the cd.
But that was the last time I did that. From then on, i've bought every single deal with a hard money loan - one where I could roll the purchase and rehab into the total loan. Then I refi'd (rate and term refi) into a conventional loan and, once I went over my fannie mae limit, into a commercial loan with a local bank (i.e portfolio lender).
As long as you can get your purchase PLUS rehab to come in under 70% of the ARV, then the only thing you end up coming out of pocket is the lender's points/fees and the closing costs. And you get the property tax credit in the purchase closing that helps offset some of that.
Essentially, you can take down a house for 5 or 6k to help preserve your capital.
To me, it is well worth paying the points/fees and the 4 or 5 months of higher interest to help me preserve my capital. As long as I'm getting a good enough deal, I don't really care about the additional 5 or 6k. Thats essentially 30 to 35 bucks a month less in profit to help me preserve coming out of pocket about 30 to 40k for a typical deal (i.e. 30% down plus 15 to 20k rehab).
If you are looking to grow a portfolio and/or you don't have that much capital, then I strongly recommend you consider this model. The one obvious trick is that you're limited a bit because you have to really cherry pick your deals so that your purchase/rehab come in at 70% or better.
James, thanks for that info. I was not aware that is how it worked. Very useful information. I would love to get more input no what you found with your lender research in Austin. Ill PM you.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
Hmmmm. I guess I've seen something different in my experience. In fannie mae conventional loans (5 to 10 anyway), there is a seasoning requirement before they can use the appraisal value. It varies but I think its 6 mos minimum (many are 12).
But the local bank portfolio loans are the ones that I've done where no seasoning is required. I've literally closed on a house with hard money, rehabbed and got it rented and COMPLETED the refi (rate/term) with the portfolio lender in just at 2 months or so.
As long as you're doing a rate/term refi, the portfolio lenders will take the new appraisal value. Its the conventional ones that want to stick with the purchase price.
And it makes sense when you think about it. A local bank doesn't care whether you've owned the house for 2 mos or 6 mos. Their risk is inherently in you and in the property itself - since they aren't selling the loan.
Real Estate Investor / Syndicator · Austin, TX · Member since 2013 · 210 posts · 135 votes
11y
@Mike H. That's not true, unless something is different in Texas. Since Fannie Mae is nationwide program, this must be across US. I know many others that do this as well. My fastest refi from hard money to conventional fannie mae is 1.97 months. Which means, i buy under hard money lender, rehab 2 weeks later and refi 7 weeks later to conventional refi under normal rates. I do this all the time.
I searched high and low for portfolio lender who based on their LTV on appraised value, but almost 5-6 of them said only purchase price. Unless the loan is season more than 1-2 years. That would not work for Hard money to conventional refi double close strategy as hard money rates are super high.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
Hmmm. Very interesting. I was not aware you could do a fannie mae conventional rate/term refi off the appraisal price without any seasoning at all. I thought it was a minimum of 3 or 6 months. But I also know that some banks have their own overlays too so maybe. The last conventional one I did was a 5 to 10 loan about 6 months ago. I think they required either 3 or 6 months seasoning before they would take the appraisal price. Maybe thats the difference? 1 to 4 is no seasoning and 5 to 10 has 6 month minimum?
One thing I do know though is that while it may be a fannie mae loan, the seasoning requirements will vary quite a bit from bank to bank. And I'd bet if I had to guess that there would be more banks at 1 year of a seasoning requirement than anything else.
The obvious problem with conventional loans is that you only have so many of them and then you have to go to portfolio lenders to keep growing.
As for portfolio lenders, thats the one thing about your post that surprises me the most. Are these local banks that you're referring to? Or are they commercial type lenders that are doing blanket loans?
I've never seen local banks down here that require seasoning. If they can do the loan, they can do it off the current appraisal price. They don't have any seasoning restrictions at all.
I've also heard several hard money lenders from texas speak to having hard money loan products that roll into portfolio loans immediately so that seems to suggest that there are some portfolio lenders doing refi's with no seasoning.
Maybe you just need to find the right local bank....... But I actually did think that financing was far better down there than it was up here. From the sounds of it, maybe not. :-)
Thanks everyone for weighing in on this! Great discussion - and appreciate the experiences you've shared with your lenders. Just from my observations, a mid-westerner living in Texas, the Texas lending market seems vastly different than the Wisconsin/Illinois market, although my only experiences are educational, and only in Texas for the past three years. It seems far more common here to see HML's partnering with either portfolio or conventional lenders to expedite this particular model of investing. Although the Midwest may be catching up to this as it becomes more of the normal routine method of financing properties.
Hmmm. Very interesting. I was not aware you could do a fannie mae conventional rate/term refi off the appraisal price without any seasoning at all. I thought it was a minimum of 3 or 6 months. But I also know that some banks have their own overlays too so maybe. The last conventional one I did was a 5 to 10 loan about 6 months ago. I think they required either 3 or 6 months seasoning before they would take the appraisal price. Maybe thats the difference? 1 to 4 is no seasoning and 5 to 10 has 6 month minimum?
One thing I do know though is that while it may be a fannie mae loan, the seasoning requirements will vary quite a bit from bank to bank. And I'd bet if I had to guess that there would be more banks at 1 year of a seasoning requirement than anything else.
The obvious problem with conventional loans is that you only have so many of them and then you have to go to portfolio lenders to keep growing.
As for portfolio lenders, thats the one thing about your post that surprises me the most. Are these local banks that you're referring to? Or are they commercial type lenders that are doing blanket loans?
I've never seen local banks down here that require seasoning. If they can do the loan, they can do it off the current appraisal price. They don't have any seasoning restrictions at all.
I've also heard several hard money lenders from texas speak to having hard money loan products that roll into portfolio loans immediately so that seems to suggest that there are some portfolio lenders doing refi's with no seasoning.
Maybe you just need to find the right local bank....... But I actually did think that financing was far better down there than it was up here. From the sounds of it, maybe not. :-)