I am opening this discussion to see how others like myself get through the growing pains and regional banking differences.
First, about me, I am a part of a 3 member partnership. We buy single family homes with the intention to remodel, rent, and hold for long term cash-flow. Currently, we operate in Iowa, Missouri, and Ohio.
The properties we purchase are typically $15,000-35,000. We do full gut & remodel so usually our costs are around 20-30k in remodeling expenses. As of right now, we buy about 5-7 houses a month in each location as the housing supply and current cash-on-hand allow.
Our portfolios in Iowa and Missouri are growing steadily with 50+ units in each location. We have been able to secure financing through local banks that are writing portfolio loans on each individual property. We typically get a loan with a 20yr amortization on a 5/1ARM at prime + 1. Appraisals tend to come back in the 50-70k range and we either get 80% LTV or one of the lenders caps us at 85% of cost. The banks require a personal guarantee and the number they like to see is our DSCR at 1.2 or higher which we have no issues with.
We are newer to the Ohio market but we have acquired 9 properties and we are looking for financing. Because of the laws pertaining to recourse on the loans many traditional banks are not interested in us for a variety of reasons (no local member, low end segment, single family homes, etc.)
This has us mainly looking at 2 different options.
1. Private lenders/Hard Money. This is significantly more expensive but relatively easy. The only issue is getting loans under $50k because many of the private lenders have minimums. The other issue is sometimes the LTV isn't as high so we aren't able to pull as much capital out. All in all this is a viable option but not preferred.
2. Trying to capture the attention of a large national bank (US bank). In Missouri alone, we are around $2,000,000 in loan value and another $1,000,000 in Iowa. With our real estate plus bringing other business accounts to the bank I would expect that we might be approaching a threshold that starts becoming interesting to a large bank in their commercial lending or wealth management divisions.
With these two options being explored I am looking for more options that others have tried. I had a conversation with a lender that says he does direct mortgage lending for a Life Insurance company. How do you go about finding more of these types of lenders (assuming his strategy works for us). He says he can loan up to $1,500,000 to an entity which would be a huge opportunity for me to grow in Cleveland until I have a substantial portfolio there as well and can bring my loans to another bank similar to option 2 above.
Are there other options that we should explore? Are there any private lenders that don't like getting into transactional financing and small time hard money but might be interested to hold paper on portfolios like ours?
