Many people find it is very difficult to finance more than four properties, because of strict bank guidelines. However, there are banks that will finance more than four properties if you know where to look.
Rental properties can provide incredible returns and make you a lot of money, as I discussed in my article “How much money can you make from rental properties?” I have a passion for cars. Cars can be very expensive, especially old and rare cars. In order to be able to someday afford rare, old automobiles I need to invest my money so it grows fast! The best investment vehicle I have found is long-term rental properties. The reason I love rental properties? I am making at least 24% cash on cash return on my 7 current rentals. I go through the process of how I get such high returns in my complete guide to investing in long-term rentals. In order to provide a lot of cash flow I have to buy a lot of rental properties. The problem with buying many properties is most lenders don’t like lending to an investor who already has four mortgages. There is a way to get a loan on your fifth, sixth or twenty-fifth property, the trick is to find a portfolio lender.
When I first started
For my first rental properties I used a mortgage broker to fund my deals. He did a great job of finding the right lender for my needs. However, the lender still required me to jump through multiple hoops, send in every financial detail of my life for five years and justify any deposit made into my account over $1,000. As a Realtor I have a lot of deposits over $1,000 and I spent hours and hours hunting down each deposit and explaining exactly what it was for. Even then to get a decent interest rate I had to put 25% down. The sad part was, I did not have four mortgaged properties at this time. After you have four mortgaged properties is when it really gets tough!
Conventional lenders that loan on more than four properties
Once you have four mortgaged properties the fun really begins. Technically Fannie Mae guidelines say investors should be able to get a loan for up to 10 properties if they meet certain guidelines. However, many lenders still won’t do it, they say it is too risky and will simply say sorry we can’t give you a loan. If you make enough calls you should be able to find a lender who will loan up to ten properties or a mortgage broker can probably help you find a lender who can get it done. These are the requirements for most lenders that will loan on more than four properties.
- Own between 5-10 residential properties with financing attached
- Make a 25 percent down payment on the property; 30 percent for 2-4 unit
- Minimum credit score of 720
- No mortgage lates within the last 12 months on any mortgage
- No bankruptcies or foreclosures in the last 7 years
- 2 years of tax returns showing rental income from all rental properties
- 6 months of PITI reserves on each of the financed properties
Refinancing with a conventional lender with more than four mortgages
If you want to refinance any of your properties they will only allow 70% loan to value ratio and probably won’t allow you to take any cash out. Personally I think this program leaves a lot to be desired. One of the keys to my program is being able to take cash out when refinancing and putting 20% down. Yes, it allows investors to loan on more than four properties, but the requirements are ridiculous in my opinion. If an investor has the cash to put 20% down and hold cash reserves on more than four properties than in my opinion that investor is probably less risky than the first time home buyer putting 3.5% or less down.
There is a special program Fannie Mae offers on their own foreclosed properties. Fannie Mae uses a program called HomePath to market and sell their own properties. If an investor purchases a Fannie Mae HomePath property Fannie Mae says they will allow banks to loan on up to 20 mortgages for one investor! Again, finding a lender that will be okay with those guidelines is very tough. Last I checked, Prospect Mortgage worked very close with Fannie Mae and may allow up to 20 mortgages for an investor.
Local lenders who offer portfolio financing are another (and my favorite) option for investors. It can take some research, time and networking to find a portfolio lender. Portfolio lending means they are using their own money to fund deals and they don’t have to use Fannie Mae guidelines. My portfolio lender has no limits on how many loan they will give to investors as long as they have the cash, reserves and income to support the mortgages. T hey allow 20% down on those properties and don’t require your life’s history to give you the loan.
With my local bank they will not lend on a 30 year fixed mortgage. They offer 15 year fixed, 5/30 and 7/30 ARMs. For me a 5/30 ARM is perfect, I want the lowest rate and to pay off my loans quick. A 5 year ARM also gives me added motivation to pay off my loans as quickly as possible. The local bank charges slightly higher rates and origination fees, but not by much. My last investor, 5/30 ARM was locked in at 3.625%, its hard not to cash flow with those rates! The local bank will also require you to move all your accounts over to them, but that is a small price to pay for investor loans.
Finding a portfolio lender
There is no guide or website that lists all the portfolio lenders, at least I have not found one yet. In order to find a portfolio lender it takes some leg work. First step is to ask everyone you know in the Real Estate industry. Ask Realtors, lenders, title companies, property managers and other investors. Local Real Estate investor clubs may be able to provide information on portfolio lenders as well. If you can’t find a portfolio lender through word of mouth try calling local banks. Ask banks if they loan their own money, what their policies are for investors and if they don’t offer the right terms ask them who might.
Are you working with portfolio lenders or finding other ways to mortgage more than four properties?