I got a call from a retiring investor that is looking to sell 7 properties (houses and 6 plex) in a single package. He will sell for 900k (FMV is 1,300,000). So the LTV is 70%. I know the area well and the FMV is accurate and based on recent comps. The seller wants cash but said that he would consider holding a second.
The properties are all currently rented and will cash flow. We would sell some/keep some for long term rentals.
I am looking for some ideas on how to finance this.
I have rehabbed and held rentals full time for the last 4 years. My partner has had rental properties for 20+ years. We have dealt with a few national banks in the past but we don’t really have a relationship with a local banker.
Re: buying portfolio - blanket loan - Posted by Ed Garcia
Posted by Ed Garcia on January 28, 2007 at 13:23:22:
The first thing I?d like to say is, you being an investor for 4 years, the time has come for you to find and build a relationship with a local bank.
Because of the various types of properties in this portfolio, meaning the 6 unit building, I agree with Jimmy, if I?m not sure at the time of purchase what I plan to keep or sell, a Blanket lien could be one way to go.
Gene it?s difficult advising you, when we don?t have all of the information.
For example there may be a property or a few properties in the portfolio that have existing financing currently on them that you plan to sell. Why would you want to refinance old existing loans with new money, paying refinancing fees etc. and then immediately pay them off when you sell them? Wouldn?t you be better off restructuring the deal utilizing the existing financing until you sell them, it would be far more advantages.
That?s why I mentioned to a previous investor who just recently posted on this board that when purchasing a portfolio, chances are you?ll use a combination of financing.
When looking at a portfolio, my first instinct is to do it with a combination of seller carry-back, new financing, and using some of the existing financing as well.
Ed will have a different solution for you. you should consider his WLOC idea. but here is my experience with blankets.
I have several cross-collateralized blanket loans. I like them. Here are some features, pro and con:
strictly commercial. 15 yr ams are the norm. current rate from my banker is 7.05%. acquisition loans at 70-90% LTV. refi’s at 70-80% LTV.
business bankers are not constrained by FNMA/FMAC underwriting guidelines. each bank will have its own policy. I use Capital One (formerly Hibernia). some of the terms I get are: no points, no PPP, no appraisal if assessed values work for me, no title insurance if loan is under 250K (title review by atty in lieu)
now the cons:
pulling one from under the blanket. If you sell one of the properties, you will need to get your lender to execute a partial release to allow that property out. Discuss this with your lender before you do the loan. My lender has no problem doing this for me, if it gets its proportionate share of cash when the individual propery sells.
but here’s a trickier one: the re-amortization request. let’s say you sell your 6-plex and a couple houses. You have sold more than half of your properties. and the bank has confiscated an appropriate part of the sales proceeds. but your loan payment is still what it was on day 1. ouch. Your $6500 note payment was easy to pay when you had all 12 units pumping out rent. but now you have only 4 houses. your 15 year am just became a 5 year am. I have requested re-amortizations a couple times, and have not been denied. but don’t count on it. Discuss this with your banker. Have an agreement which permits re-amortization if you sell 25% of your portfolio. The lender may say no, or may negotiate. But DO have the conversation.
one of the reasons I find the blankets atractive is this: I have a lot of low-value properties. Values range from 30K up to 125K. I would lose my mind with 55 individual loans. Instead, I have 7 blankets. I like to acquire these things all-cash, and then bring 5 or 6 or 7 to my banker. and I like to keep my loan denominations under 250K, because of the easy underwriting.
Thanks for the response Ed. I have been reading your posts and articles for a few years and I have gained a lot from them. I hear you about the local lender. I knew someday that I would need them for a deal like this…but I didn’t take the steps needed when I should have.
On this deal…
The seller owns them all free and clear. I asked about owner financing and he was not into it at all. But later in our conversations he did say that he had taken seconds in the past so I think he will carryback some if he gets most of his money up front.
I have about 100K, so we can put about 10% down, and with him carrying a second…I think we can get this done…I am just not sure how.
I talked to the morgage broker I have used in the past and she is clueless about a deal like this. My partner has had a large savings account (varies from 100k to 300k) with our loal small bank for the last few years so I think they might be the place to start.
Both me and my partner have good credit but we both have little confirmed income.