How do you do it?

[JoeC_Cereniti]

I am researching financing on loan programs for rental properties. I am looking to buy fix up properties and I need a loan program that is no money down and allows for rehab funds.

I have considers 80/20 loans as well as purchasing with hard money and refi into a traditional mortgage. We have big aspirations and would like to have several properties in our portfolio. One problem I am finding with all the loan programs is a limitation of 10 loans including your primary residence loan.

My question is how are you seasoned veterans :praise: financing your rental properties? I have done searches on the site but still am looking for real world examples. Any feedback would be great.

[dealmaker]

I don't mean to sound glib, but once you have 10 (if you're doing it right) the financing takes care of itself. That would mean you had 9 rentals throwing off enough cash to retire those 9 loans, actually in my scenario you'd have some of the early ones retired prior to acquiring #s 8 and 9. Then you just do 100% down loans. Unfortunately many people who fancy themselves "investors" are barely making debt service on their properties, much less generating handsome profits. IMO the only reason to own property is CASH FLOW, in decent quantities.

I know most other people on here will tell you to use leverage to the max, that's the way the gurus preach it and those that drank the kool aid do it. Or at least they say they do! IMO loan fees, other junk fees and interest are unnecessary expenses. I've been on "all cash" since the mid 90s. Trust me, if you and I are competing to buy from a "motivated seller", and your "slick-as-heck-can't-miss-sure-fire convoluted program" to save him takes more than 45 seconds to explain, I'LL END UP WITH THE PROPERTY, AND PAY HIM 20% LESS THAN YOU WERE OFFERING. "All Cash-3 day closing" takes no time to explain and EVERYONE understands it!

Just my (not so) humble opinion. Feel free to ignore it.

dealmaker

[brianb_cobbres]

Not quite what we were looking for.

A little background. You may recall that Cereniti Properties is made up of 3 investors. I have finally started making offers for rehab projects where Joe will be working the rental market. Between the two of us we plan on keeping our other partner (general contractor) very busy.

You are going to have to trust me when I say that Joe has done his homework and truely understands that costs and financial model for rental properties. We are ready to start moving on some longer term rental properties specifically to create monthly cash flow and to leverage equity to finance both rehab and new construction projects.

Here is what we are looking for

1. Most loan programs will only permit 10 mortgages per person including your own home yet we have read about people with 100 rental properties. How is it possible to overcome this 10 property limit?

2. Many of the properties we are looking at do not at least some renovation to make the rentable. Is it possible to get money back at closing to finance the renovation? We may have to use our rehab loan to purchase, corporate credit to renovate, then refinance into a long term 90-100% mortgage. Is this the best option?

Edit: I should add that we are looking for owner financing and lease purchases but there are are a number of good potential rentals that will require traditional financing.


Let the games begin

Brian

[JoeC_Cereniti]

Dealmaker,

I appeciate the candid in your post but it was not at all helpful. I for one am not a seminar get rich quick type of investor. I am however new and am trying to learn everything I can prior to jumping into this because the one thing I happen to agree about with you is cash flow is king and is why I am entering into this.

Now understand, some of us that read and post on these boards are not "seasoned" investors nor can operate on a "cash basis". Some of us are actually asking questions of the "seasoned" investors trying to make sure we don't go out and lose our shirts.

Now that you hopefully understand my position, maybe you can add some constructive dialog to the thread. After all you are a moderator, that tells me you should know your stuff. Please don't let me think that this board is not here to help those who have legitimate questions. I am really trying to learn.

[Jim FL]

Joe and Brian,
I think I follow you.
You want to acquire many rentals, purchased below value, to fix up, and hold for a nice cashflowing portfolio?
So far so good?

Alright, you want to know about how some of us here, who have many rentals, get funding to buy them?
Simple really.
Either you get a loan from a lender, using a broker who has many to choose from.............but as you said, there are limits with some lenders, and local banks as to how many loans you can take out, at least til big enough to get more etc.........meaning a longer track record in business.

or

You can use some form of seller financing, or a combination of the above and seller financing.

What if you find a property, a rental, you can buy for 80% of value, and the lender will loan you 90% of the purchase or appraised value, which ever is lower.
Find a lender who will allow the seller to carry a second, or kick in at close, all disclosed at closing of course, on paper, which would help you get in for zero down.
There are federal loan programs, the 203 program comes to mind, for a loan to buy, and draws for repairs/rehab etc.

or
Use my personal favorite method, and frankly, the way I buy MOST of my properties, rentals, and those we quick turn, or sell carrying paper..............buy subject to.

Let me give you an example...........
I just purchased a nice four unit in my area, will cashflow well, and only needed some cleanup.
Seller bought it as an income property to augment income when they transferred into our state 5 years ago for a job.
Now, they are back in another state, are not on site, have not seen the property for 3 years, and simply wanted relief.
I took over ownership, left their loan in place (no cash from me to them), cleaned/painted/carpeted the two empty units, have one rented, and the other has a list of apps.....along with a notice for rents to go up on the other two units, since they have paid the same since moving in, 4 years ago.
All in all, I'll spend total, about $4k in repairs, advertising, and some deferred maintenance, and two units cover the mortgage payment/taxes/insurance, and $175/mo opps fee............leaving the rent from the other two, to be my cashflow/income from the property.
They are all 2 bed, 2 bath units, and rent for $500/month each, at least they will be within the month.
I took over a loan, with a 7.5% rate, fixed, 25 yrs left on it, and get this.............a balance that shows me I owe less than 67% of the value..........that is TODAYS value by the way, based on the comps in the area, since there are 12 other four units nearby, same layout, same builder, but ALL in slightly better looking shape then when I bought mine.
(Something a simple pressure washing, and landscape cleanup fixed within two days.

Will a lender I apply to for a loan care abouy me owning this property?
Nope, they will not know about it unless I tell them.............meaning, there is no limit as to how many properties you can buy this way.

If targeting single family homes, there is the other added benefit of having/taking over owner occupied rates on your rentals as well.

So, hopefully this shows you how some of us buy multiple rental properties, without jumping through hoops to get bank/lender loans.

And of course, straight out seller financing works as well, when the property is owned free and clear.
I do that too, and IF you pay interest, as a good negotiator and savvy investor, you very well should beat hard money rates............by a long shot.
My last one, the interest rate was ZERO..yes, ZERO, 100% of my monthly payments came off the balance.
Try to get a lender/bank to do that?

My point, don't limit yourself.

Hopefully this answers your question/post, and/or makes you think at the very least.

Take care, and good luck,
Jim FL