how do some investors own 50-120 properties? How are they getting mortgages for these? ?
are lenders lenient in lending in newly formed llc’s for each property? what strategies are out there for acquiring numerous loans?
Tags: 50120, Getting, investors, Mortgages, properties, Some, These, They
No, lenders won’t lend to new LLC’s without the personal guaranty of a strong shareholder.
The best strategy is first to have excellent credit. Then buy one investment property and get a positive cash flow coming in. Keep building up the inventory one property at a time.
It isn’t hard to buy two houses a year but you aren’t going to get them much faster than that unless you have a very large income from your job and can save a lot of cash for down payments.
You build such an enterprise over years with hard work, smart choices and good luck. There is no shortcut.
The first thing you may want to consider is what type of properties the investors have. Are we talking about retail, office, single family homes, multi-family under 4 units, or apartments. Some of those investment types are easier to get financed on than others. From our experience, for investment purposes, obtaining financing on single family homes is hardest. The reason being, if the tenant leaves, the owner shoulders the payment 100%. There are no other units to help absorb or limit a loss.
To answer your question more directly, most investors carry multiple properties through package loans. They form an LLC which owns the properties, and the bank creates one loan (itemized internally) for the whole lot. As an investor adds properties, the loan increases and, likewise, when they sell properties the bank releases the property from from the collateral backing the loan and clears that property from the package. Granted, this is a simplified way of explaining it, but its really not that much more complicated.
Obtaining a loan is no more difficult for a new LLC versus one that was established 10 years ago. Any bank would like to see the members of the LLC to have high credit scores personally, but in no way will a lower credit score prevent a buyer from purchasing property when using a commercial loan. Most banks will still loan 80% of value. With new investors, I almost always recommend starting with duplexes on up to apartment houses/buildings with up to 10 units. From our experience, the bank is much more concerned with the cash flow of the properties and their equity position. Obtaining a good purchase price and ensuring a strong rent history is paramount to scoring a good loan.
Again, I want to emphasize that an investor does not need to have platinum credit to get a loan on investment property. We recently represented 2 clients in the purchase of rental properties, both with newly formed LLC’s, and both with significant credit issues. One had a bankruptcy in the past 5 years and one just had his home foreclosed on back in April due to a separation and divorce. In each case, the bank weighted the strength of the rental properties and the bank’s equity postion (based on appraisal) far more than the LLC member’s personal credit scores. This is a major difference when you are obtaining a commercial loan versus a personal loan.
I would caution you against seeking numerous loans for multiple investment properties. First off, you will receive a significantly better rate by lumping all the properties into a package loan. Once you get over $500K, seeking out a national bank such as US Bank or Bankcorp will benefit you significantly. We have seen US Bank offer buyers a rate of 6.5% on loans of $500K or more. We have been very successful in moving multifamily units this year as result of such loans.
Starting out, be prepared to put down 20%. But as you go, if you buy right and get good appraisals, you can start to use that equity to your advantage and use it as collateral in package deals to lower your initial out of pocket expense.
I disagree that it should take years and years of hard work to get up to 100 units. Though it will take hard work, having someone who knows how to build property portfolios and how to package properties into a loan will cut your time into fractions! I can take someone with a credit score of 600 making $60,000 a year with $20K down to get started and have them up to 50 units in 5 years. It all goes back to one thing, both for the banks and the investors: You don’t make money in real estate when you sell it, you make it when you buy it! In other words, a trained eye will help you buy wisely and you can build your portfolio quite quickly.