Line of Credit to easily scale SFH portfolio (Advice Needed)

[Blake Ramsey]

As a SFH investor with a $6M portfolio, I recently outlined in my previous post how in 2020 my business partner and I did a large Cash-out Refinance into a Portfolio Loan which moved all debt out of our names with the plan to aggressively purchase 15-20 SFHs in 2021.

That said, over the past 2 months 4 have been purchased using conventional financing but with $600k+ sitting on the sideline we need to move faster. I am writing this post in hope the community can provide any guidance on my creative finance strategy.

I currently have the opportunity to get a $3M of credit which can be used to cover 80% of the acquisition cost at 8% interest with a 9-month term. The thought would be to quickly acquire 15+ homes (~$230k a piece) and refinance into another portfolio loan (this I outline in my previous post but was 4.7% interest, 10-year balloon, 30-year amortization, 25% LTV, non-recourse).

LOC advantages:

Quickly deploy capital (months vs a year or two)

20% down

Refinance into better terms once fully deployed

Homes cashflow $400/month even at 8% (might be able to get this lower)

Potentially capture appreciation (reduce the 5% burden of additional LTV from LOC to Portfolio)

Concerns:

Higher interest rate while leveraging the LOC

20% down but refinance will require 25% LTV (probably requires additional cash at closing)

Recession/housing crash within the next 12 months (i.e 10% decline in prices + 5% additional LTV + worried lenders could be a real challenge)

Questions:

Am I missing anything?

Has anyone done this before?

Are there other loan offerings out there that could be worth exploring?

**What I am not looking for in this post is to discuss the choice of investment (i.e. why don’t you buy 500 unit in Detroit instead?? (BP Joke))**

- Blake