Summary: In this article you’ll learn tips and strategies for how to finance multiple rental properties, beyond ten conventional loans.
The average investor will need to own about eight to ten investment properties to generate enough monthly cash flow to retire, however true beauty in real estate investments comes from leverage. Leverage is the ability to use a small amount of your own money (generally 20-25%) and large amounts of someone else’s when investing.
Here is some interesting data that really exemplifies the power of leverage:
If we compare the DOW in 1980 at 830 points to 2004 at 10,000 +-, that’s about a 1,100% gain. Home prices across the nation increased by about 400% during the same time period. This makes the stock market look really good, however this does not take in to account the fact that most of us buy real estate with leverage.
Let’s assume you made a 20% down payment on a $100,000 home in 1980. By 2004 the home value increased 400% and was now valued at 400k. The gain on the sale would be $320k which means your initial investment of just $20,000 grew to $320,000 which is a gain of about 1,600%. This is far better than the stock market.
Below we will get into a few strategies of how to finance multiple rental properties in today’s market.
How many rental properties can I finance?
Finance Option #1 - Conventional Bank Loans
You can generally finance up to ten properties with a conventional Fannie Mae/Freddie Mac loan and up to 20 if you are married. Conventional loans are generally the least expensive means of obtaining financing to grow your real estate portfolio. These loans require full income documentation, and your debt-to-income ratio is considered.
Don’t worry though, we do have the ability to use a portion of the “projected rental income” to offset the new loan payment so you can acquire properties quickly using this option.
Finance Option #2 – Non-QM “No Income” loans
Non-QM loans allow an investor to purchase rental real estate with no income documentation and no debt-to-income ratio requirements. This program has no limits on the number of rental properties you can finance and is the perfect solution for someone who is retired, self-employed or can’t qualify for a Full Doc Fannie Mae loan.
Generally, these loans carry a premium over and above the conventional bank loans mentioned above.
Finance Option #3 – Cross Collateralized or Portfolio loans
Cross collateralized loans also know as portfolio loans allow you to bundle multiple mortgage/properties into a single loan. The rates are often adjustable and/or they have a balloon payment due prior to full maturity.
There is no limit on how many properties you can finance with this option however these loans are difficult to find in the current market and have dropped in prevalence with the advent of the Non-QM loans.
How to finance more than 10 properties?
As mentioned above, financing more than ten properties is possible using Non-QM loans and cross collateralized or portfolio loans. However, these loans can be difficult to find and more expensive to obtain compared to conventional financing.
So, what to you do when you want to finance multiple rental properties, but you’ve maxed out ten conventional loans?
Here are a few tips that can help…
5 tips for how to finance multiple rental properties
Tip #1: Divide and concur with your spouse
Tip #2: Utilize the 1031 Exchange
Tip #3: Setup an LLC for Non-QM financing loans
Tip #4: Responsibly leverage properties with equity
Tip #5: Partner up with other real estate investors
I hope this article gave you some new insight about how to finance multiple rental properties, beyond ten conventional loans.
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