Beyond 10 loan ideas

[Phil Mcnally]

Hi All

I would like to generate financing ideas for properties beyond ten conforming loans. Lets imagine a scenario...

10 x SFH average value $100k

20% - 25% down

Total property portfolio value = $1 million

Total Loan balance = $770k

All on conforming Fannie Mae Loans including the 5 - 10 program

But...

Next I see ten $500k properties I would like to buy but all my loans are used up. What to do? 

Presume cash and qualification for bigger loans is no problem.

1. Find a bank that will take cash down payments and offer commercial loans beyond the conforming ten in existence. The loans would likely be 1% or so higher rates and 10 - 15 year duration with balloon payments etc. Down payments of 25%?  

Buy ten new properties worth $5 mill with $1.25 mill down.

Keep ten existing properties worth $1 mill with $230k down.

Result:

20 properties worth $6 mill and approx $1.5 mill down (worse than 2b (see below), as commercial loans are on 83% of the value)

2. Pay off an existing conforming loan ($75k + $25 original down) to free up a loan slot. Buy the $500k property with a 30 year fixed and 25% down ($125k).

Total 'cost' $225k down for two properties ($100k original and $500k new) worth $600 total.

Repeat this ten times and end up with 20 properties 

Result:

20 properties worth $6 mill and approx $2.25 mill down (more money tied up and commercial loans are on 83% of the value)

2b. Then take the ten paid off properties ($1mill value) and cash out refi with a blanket loan? Portfolio loan? Heloc? at 75% LTV ($750k) For a final result similar to idea number 1.

Total 20 properties worth $6 mill and approx $1.5 mill down (better as cheaper 30y loans are on 83% of the value)

3. Sell the existing ten properties and 1031 exchange into the ten $500k properties using conforming 30y loans. Lose 6% - 8% in transaction costs ($60k - $80k)

Result:

10 properties worth $5 mill and $1.33 mill in down payments and transaction costs (cheaper 30y loans are on 100% of the lower value)

4. Other? 

Let me know your ideas.

phil