Did you know the average investor will need to own about eight to ten investment properties to generate enough monthly cash flow to retire? Below, I share the benefits of using leverage and provide tips and strategies for financing multiple rental properties beyond ten conventional loans.
Using Leverage in Real Estate
The true beauty of real estate investments comes from leverage, which is the ability to invest in a property with a small amount of your own money (generally 20-25%) and large amounts of someone else’s money.
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 into account the fact that most of us buy real estate with leverage.
Suppose you made a 20% down payment on a $100,000 home in 1980. By 2004, the home’s value had 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 usually 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 can 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 without income documentation and 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 known as portfolio loans, allow you to bundle multiple mortgages/properties into a single loan. The rates are often adjustable and/or they have a balloon payment due before 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 should you do when you want to finance multiple rental properties but have maxed out ten conventional loans?
Here are a few tips that can help.
5 Tips for How to Finance Multiple Rental Properties
1. Divide and concur with your spouse
One of the best tips for financing more than ten rental properties is to divide and concur with your spouse. Instead of qualifying jointly for ten loans, obtain loans separately to get up to twenty conventional loans.
2. Utilize the 1031 Exchange
The 1031 exchange is a powerful tax deferment strategy that can help you expand your portfolio. One option is to invest your gains from one property into multiple new properties.
3. Setup an LLC for Non-QM financing loans
Another option is to set up an LLC for non-QM financing loans. This is completely legal and allows you to minimize the overall risk of using this type of non-conventional financing.
4. Responsibly leverage properties with equity
If you own properties with low loan balances, you might consider cashing out to help accelerate your ability to acquire more real estate.
5. Partner up with other real estate investors
One final strategy you can use to finance multiple rental properties is to find partners! This is a great option for investors that have money, but not quite enough to buy a property all cash. Make sure your partner is someone you really trust and this could be a great strategy.
Final Thoughts
I hope this article gave you some new insight about how to finance multiple rental properties beyond ten conventional loans.
If you’re looking to grow your portfolio and need help finding single and multi-family inventory around the country with experienced property management in place, RealWealth can help! Join RealWealth today (membership is 100% free) to view sample property pro formas, schedule complimentary strategy sessions with an experienced investor, and get access to a network of real estate professionals like me who can help with everything from financing to asset protection.
If you want help getting loans for your investment property, that’s my specialty! Visit my website to connect and let me know you found me by reading this article!
