Is anyone trying this type of financing

[Devin Haertling]

I have been on BP for a little while now and I have not come across anyone financing the way I have or maybe I just haven't recognized it. To start I bought my current home I live in for 110k. I'm a DIYer and fixed it up myself for 25k. It appraised at 160k. At this point I was not interested in rental property. Fast-forward about two years and a house on my street became available. I contacted my lender for my loan on my current residence. Mind you this is a private small bank. I asked him what kind of financing we could do on this house. He told me I could bridge the equity on my personal residence to use as a down payment on rental property. I was hesitant at first but we jumped in. Since then we have bought 6 SFR ranging in price from 40k-55k over three years. Each deal is 4.5% amortized over 20 years with a balloon payment due at 5 years that will roll over into a new 5 year rate and so on until it's paid off. Since we started that rate has stayed steady at 4.5%. The bank has also let me roll the closing costs into the loan as well so I have bought 6 houses with only about 500-1000 out of pocket for simple repairs and the such. My 6 houses currently cash flow 3900 per month. I self manage and I am in a town of 3200 people. The rental market is crazy here for such a small town. My vacancy rate over 3 years is almost 0. I have only had turnover in 2 of the 6 houses. I think this is because most of the other landlords don't fix things when they break and are just bad land lords. It seems with every house I have I get 2-3 qualified applicants within 2-3 days. My banker says he can continue to do these deals and even expand into 4 unit multi families as long as the equity is there. Is anyone else out there doing this kind of financing? I know there are risks with this but I want feedback if I should continue to pursue this method or is there something I'm missing. I would love any comments you all would like to leave.

[JD Martin]

Whenever you are working non-conforming loans (ie conforming to freddie/fannie buyback rules) you can just about do anything; if you find local banks willing to hold the notes in-house you have a whole lot of flexibility. That is a good rate for what you are doing so the bank must have a lot of confidence in what you've done so far, and you must have good financials. 

Every private bank (and I'd really say every bank, but anyway) exists for one reason: to make money. Banks make money by loaning money. Real estate is a good game for banks because it's backed by (theoretically) hard assets that are unlikely to become worthless, unlike a car, business venture, etc. Small banks that are well-capitalized and uninterested in running lists of mortgages in and out can do this kind of thing if they are so inclined, so it really looks like you've found a nice slot! 

Hint: Keep the name of the bank to yourself :)  It's like sharing your fishing hole.