All Forum Posts by: Blake Ramsey

Hey David, glad to see you also live in austin (happy to talk shop in person).

$1M cap at local banks is what i typically saw when i was doing those local commercial loans in colorado springs. I also found there were plenty of local banks to rinse and repeat so that "cap" wasnt a big deal. Im more curioius why you would be stuck at a 20 year ARM. That seems a bit unusual from my experience as 30 year has been an option with every loan i have ever applied for. Any thoughts as to why you are seeing that?

Real estate requires capital and time. All 36 SFHs homes in my portfolio required 20-25% down with an average purchase price of $270k but the path to scale comes with inevitable financing challenges. Here is one avenue for how this can be accomplished:

Properties 1-4: GO GET THE RATE! – Take that 20% down with insane rates all day. I did most through Guaranteed Rate but any large lender will be similar. I have always been told the lenders can loan up to ten properties but find past 4 gets very difficult (If you have a partner put one on each name to get 8)

Properties 5-20: GO LOCAL! -- Look the main point is to get the loan and stop worrying about the rate as much. Getting leverage is better than no leverage. Local banks are a great option for loans at this point as they know the local area and can assess the risk of the loan in house. I tend to find above $1M per investor these local banks start to worry about over leveraging them sells to one person. That is okay, just ask for another bank and they will be happy to give you a reference (never hurts).

This loan will be commercial with a 30-year amortization and 5–10-year balloon. There is likely no prepayment penalty which is great but you'll likely have to sign-off personally.

Properties 20+: CASH OUT WITH THE BIG BOYS:

Hopefully at this point cash-out refinance is needed to start scaling quickly. Although it is possible to still acquire and refinance with local banks it becomes hard and annoying to go through the process. Plus, how many local banks are there?

Therefore, working with a large real estate lender (such as CoreVest..if you find a better let me know) opens many doors.

1 Portfolio Loan with cash out:

All of your individual mortgages become one mortgage associated with an LLC which will be re-appraised at current market values giving the opportunity to cash-out.

Details:

-Non-recourse! I like to think of myself as an official partner of the bank at this point.

- All assets are removed from your name which will normalize your FICO credit score

-They will require quarterly updates on your books

-5-10 year balloon is the norm but expect prepayment penalties

- Lender holds 3 months of reserves

Here was my breakdown when first exploring this: https://www.biggerpockets.com/...

Properties 20+: PLAY WITH THE BIG BOYS:

Flush with cash after the cash refinance and hopefully additional capital the number one priority is acquiring properties. Conventional avenues (i.e rocket mortgage) and local banks could be an option again as nothing is in your name. But a Bridge loan is the best option for scaling quickly:

Bridge loans are essentially a line of credit and sellers will treat it this way as a 20-day close is much faster than any conventional mortgage. Also, when they see a multi-million-dollar credit line they know you are serious.

Once the credit line is used or the term nears the end cash out refinance into a portfolio loan. Rinse and repeat.

I have been pretty absent on this site due to a full time job, managing all properties ourselves plus the RE fund but wanted to provide an update...

This ended up being a great decision and allowed us to nearly double our portfolio in one year. We also are using the lender for our fund with the same strategy. I really recommend this for any mid-sized portfolios especially Corevest for lending given their great rates and no fear of lending (they do qualify strictly but small banks worry about over leverage)

@Drew Sygit my last lender wanted 1 year. That said, yesterday i found terms at 4.5% acquisition financing and 4% long-term financing. That is a no brainer so I'm starting that process now.

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

@Mike Wadsley i love the springs as well and do think it is a great place to invest. I think for me, it was good to diversify markets and yes, try to find great homes that are more affordable.

@Mike Wadsley Certainly top of mind and for a few months it did give us great pause to see how the burden of COVID would impact our tenants ability to pay rent. Thankfully, our tenants made it through okay, transitioned to working from home and throughout this ordeal only one roommate within our portfolio got behind on rent. Since then, he has caught up. 

That said, i do have an Airbnb in DC which got decimated but thankfully i placed it on forbearance for a few months while we pivoted to a long term rental which now breaks even. 

Lastly, my partner and i both have full time jobs which could carry all the loans month to month if needed but i understand that is a unique situation and agree something everyone should consider before taking on additional debt. 

@David Robinson There were a number of factors that made Knoxville appealing for us.

1- Mid/Small size city which we are more comfortable (similar to what Colorado Springs used to be) 

2- Newer homes in general (i don't have expertise in the challenges associated with 100 year old SFHs)

3- Diverse and growing economy (UT, Government Jobs, and Medical to name a few)

4- Affordability (Turnkey SFHs are available in the low $200K in great neighborhoods)

5- It seems more off the radar for investors than Memphis and Nashville which means less competition

As for credit score, mine actually dropped from 780 to 760. My assumption is my credit utilization and mix dropped but honestly above 740 who cares.  

@Bonnie Low Correct and possible cash out if appraisals come back in our favor. 

Early in 2020 my business partner and I had a goal to focus on maximizing our financing. To give a little context, we are buy and hold investors mostly in the Colorado Springs are. Earlier this year we were crossing 13 SFHs and were chugging along with mostly commercial loans because conventional options were no longer available (conventional terms are much better than commercial). I was certain my conventional days were over (to include buying a primary residence) and having listened to many of the bigger pocket’s podcasts, I hadn't heard of anyone provide prescriptive guidance for past this point. 

However, our focus on financing became THE only effort left when COVID hit as the local banks ran for the bunkers. Essentially, our acquisitions were at a stop. This killed us because interest rates were great, cash was on the sideline and deals were out there.

Through research we started learning that a portfolio loan with a cash out refinance would be ideal for a number of reasons:

1- Interest are historically low

2- 4 homes had a 15-year mortgage (great for a good interest rate but were killing cashflow)

3- Cash out- ability to pull out $264,000 to reinvest in more properties

4- 4.7% interest rate on a 4.7M loan

5- Non-recourse* 

In my opinion, 1-4 are a nice to have but number 5 was necessary for us to continue to scale. After closing the loan, cash was in the bank and all the properties were out of our name. My personal debt on my Credit Score was reduced from 2M+ down to a few thousand (I rent, own a paid off 1998 Toyota 4runner, and live well below my means).

Since that closing in October, the handcuffs have been released and our market has shifted. We have purchased 4 homes this month in Knoxville, TN (2 with cash and 2 with conventional financing). Currently we are in the process of financing the 2 with a 80/20 cash out refinance into a conventional loan.

I wanted to share this because although obvious to some, I didn't realize the power of a portfolio loan and the liberty it can give for your own personal credit score. The ability to move debt off my name will also allow us to scale now with amazing terms and in the future, i can still qualify for a personal home when I am ready with great financing.

Our current goal is to get 20 conventional purchases in FY21 (10 in each name) and do another portfolio loan. In parallel we look to explore syndications as a way to help friends that are interested and accelerate the effort.

Would love to hear feedback and hear of any other creative ways for experienced investors to get those financing terms that we got when we first started.

-Blake

*non-recourse moves the debt from your personal name to the business. This means if you were to ever default the bank can seize all the assets in the loan but cannot come after you personally.