Rapid Acquisition of SFR's - Portfolio Lender Strategies

[Carolyn L.]

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!

[Mike H.]

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.