Author Topic: Rate of rental unit acquisition?  (Read 3977 times)

hoping2retire35

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Location: UPCOUNTRY CAROLINA
  • just want to see where this appears
Rate of rental unit acquisition?
« on: January 12, 2016, 02:58:33 PM »
Has anyone purchased a lot of rental units, at maximum rate? How quickly did you do it?

Everytime I run excel at how fast I could acquire properties I start wondering if it was extrapolated for many years how fast I could eventually get new properties. So right now if i wanted to purchase another one (and paid off all consumer debts) I could buy one in about 6 monthsby saving for a downpayment, then it would gradually speed up as the rental profits made it a little faster. It seems like the monthly acquisition rate doubles after 3-4 years depending on my adjustments. this is just for fun because I doubt I would care once i got to 10 or so but just curious is anyone out there that has 30+ units and how long it took to get those. What setbacks there were? Is it just impossible to predict this due to price fluctuations, banks, remodels, etc?
« Last Edit: January 12, 2016, 03:03:29 PM by hoping2retire35 »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28061
  • Age: -999
  • Location: Seattle, WA
Re: Rate of rental unit acquisition?
« Reply #1 on: January 14, 2016, 04:49:26 AM »
Are you assuming cash purchases or down payments?  If the latter, financing eventually likely will dry up.

But yeah, I had a spreadsheet that projected out like this, and it went through something like 15 major revisions.

Fun to do, at least!

I vastly underestimated the speed of real estate recovery.  I thought prices (in 2010-2011) would stay low-ish for about 5 years or so.  By 2013 they were high again. Bummer.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

hoping2retire35

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Location: UPCOUNTRY CAROLINA
  • just want to see where this appears
Re: Rate of rental unit acquisition?
« Reply #2 on: January 14, 2016, 06:12:05 AM »
Are you assuming cash purchases or down payments?  If the latter, financing eventually likely will dry up.

But yeah, I had a spreadsheet that projected out like this, and it went through something like 15 major revisions.

Fun to do, at least!

I vastly underestimated the speed of real estate recovery.  I thought prices (in 2010-2011) would stay low-ish for about 5 years or so.  By 2013 they were high again. Bummer.  :)

Yes, down payments. So you are saying the origination fees would make it impossible to get to the point where you are able to purchase and finance a rental unit every month or so? and if you can save for 20% of the price in one month then it makes more sense to just save for the whole price in 5?

I also realize it will become difficult to predict prices. My college town is about to have a couple of major housing expansion come online in the next couple of years so it will be interesting how acquisition and rental prices change.

Papa bear

  • Handlebar Stache
  • *****
  • Posts: 1252
  • Location: Ohio
Re: Rate of rental unit acquisition?
« Reply #3 on: January 14, 2016, 06:50:50 AM »
Traditional lending will dry up because you don't have a history of rents with your properties and your DTI will be too high.  You become risky to lend to.  Banks don't want to write mortgages unless they can sell the loan off to Freddie or Fannie (usually) and then be serviced by an institution.  Typically, a bank will want 2 years of tax returns showing proof of taxable income on your rentals if you want the mortgage payments to be taken out of the calculation.

Additionally, there are limits on the number of qualifying mortgages you can own.  I believe 10??  I've heard some
Banks will stop at 4 loans though. 

If you really want to ramp up fast, you will need cash. That cash can come from you, or what they call hard money loans.  Like your rich uncle, or a loan shark, or group of investors, etc.



Sent from my iPhone using Tapatalk

hoping2retire35

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Location: UPCOUNTRY CAROLINA
  • just want to see where this appears
Re: Rate of rental unit acquisition?
« Reply #4 on: January 14, 2016, 07:01:28 AM »
oh yeah, forgot about  the two year rule. I wonder if some of those same rules apply to credit unions?

Papa bear

  • Handlebar Stache
  • *****
  • Posts: 1252
  • Location: Ohio
Re: Rate of rental unit acquisition?
« Reply #5 on: January 14, 2016, 07:07:05 AM »
They probably will.  No bank will hold a 30 year mortgage.  They always sell off to Fannie or Freddie.  If they want to sell, they have to conform.  If the bank holds their own mortgage to maturity, then it's all fair game!  So a credit union "may" do that, but I would guess highly unlikely.




Sent from my iPhone using Tapatalk

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5104
Re: Rate of rental unit acquisition?
« Reply #6 on: January 14, 2016, 07:11:27 AM »
Four conventional loans backed by Fannie/Freddie is the limit under the basic guidelines.  Loans 5 through 10 have much more stringent requirements.  Ten is the maximum that Fannie/Freddie will allow you to have under current guidelines.

Generally, the income does not count until it is seasoned, i.e. on your tax returns for two years.

If you can find a small local bank that does portfolio loans AND you have a good track record as an investor, they may apply their own guidelines.  Most credit unions do conventional loans sold to Fannie/Freddie.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Rate of rental unit acquisition?
« Reply #7 on: January 14, 2016, 08:59:41 AM »
Four conventional loans backed by Fannie/Freddie is the limit under the basic guidelines.  Loans 5 through 10 have much more stringent requirements.  Ten is the maximum that Fannie/Freddie will allow you to have under current guidelines.

Generally, the income does not count until it is seasoned, i.e. on your tax returns for two years.

If you can find a small local bank that does portfolio loans AND you have a good track record as an investor, they may apply their own guidelines.  Most credit unions do conventional loans sold to Fannie/Freddie.
My LLC currently has just 2 with one of those banks, but we plan to buy at least 4 more this year. It will be interesting to see what factors come into play as we grow. Would like to build up to a substantial numbers, but I have always favored buying properties of increasing size as we grow, to avoid having 50+ tiny SFHs or duplexes like some investors I see/know. It keeps the accounting simpler and also increases economies of scale. Having fewer loans is just a side benefit.

@ OP - another option if you hit a ceiling for # of mortgages would be owner financing, though many of the terms offered are bullshit and should be avoided.

hucktard

  • 5 O'Clock Shadow
  • *
  • Posts: 79
Re: Rate of rental unit acquisition?
« Reply #8 on: January 14, 2016, 11:52:54 AM »
I bought two rentals this year, and on the second one, the bank counted the rental income that I was getting from the first. So I don't think it is always the case that banks require 2 years before they will count the rental income.

Papa bear

  • Handlebar Stache
  • *****
  • Posts: 1252
  • Location: Ohio
Re: Rate of rental unit acquisition?
« Reply #9 on: January 14, 2016, 03:00:09 PM »

I bought two rentals this year, and on the second one, the bank counted the rental income that I was getting from the first. So I don't think it is always the case that banks require 2 years before they will count the rental income.

I may not be 100% on this, but this is my understanding.
They usually count 75% of rent to net against your PITI.  That's fine if you have a job.  But if you need to show income from the properties as you don't have w2 income, you'll need those tax returns with 2 years of history.

A buddy of mine has 70+ units now, and he had to go to alternative financing after property 4 or 5 since he didn't have the tax return history while he was ramping up. 


Sent from my iPhone using Tapatalk

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28061
  • Age: -999
  • Location: Seattle, WA
Re: Rate of rental unit acquisition?
« Reply #10 on: January 14, 2016, 04:48:57 PM »
Whether or not they count it probably won't matter if you're buying right, after awhile.  Your DTI will be so good from the ones they are counting, that an extra one won't budge the DTI much.

It's the factor that AR listed: 1-4 are easy to get, 5-10 more hassle, and then the traditional banks mostly cut you off, and you have to get more creative.

It's something to start thinking about when you've got a half-dozen plus properties.  Before then (and especially below 4), don't worry about it.  Take the cheap institutional, low-rate, fixed mortgages while you can, IMO.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

sammybiker

  • Bristles
  • ***
  • Posts: 373
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: Rate of rental unit acquisition?
« Reply #11 on: January 14, 2016, 06:31:03 PM »
Quote
this is just for fun because I doubt I would care once i got to 10 or so

Haha, I remember when I used to think this.

Good advice in this thread.  If you're finding good deals, there will almost always be financing not far away - whether it be conventional banks, commercial, private etc

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5104
Re: Rate of rental unit acquisition?
« Reply #12 on: January 14, 2016, 06:52:47 PM »
I do think it helps in plannng your acquisitions to understand your borrowing capacity.  If you use it all up on your primary residence and one or two poorly performing rentals, as another poster did, you can really hobble yourself.  Every time you buy a property, your capacity to buy more changes.  You have checked one off the conventional list and you need to re-evaluate your DTI. Play with some hypothetical purchases and numbers using the rules of he lenders, and see what happens.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Rate of rental unit acquisition?
« Reply #13 on: January 15, 2016, 07:02:59 AM »
A buddy of mine has 70+ units now, and he had to go to alternative financing after property 4 or 5 since he didn't have the tax return history while he was ramping up. 
Does anyone need that many? I mean, I genuinely enjoy this stuff and I'd still probably stop way before that. ;)

supomglol

  • 5 O'Clock Shadow
  • *
  • Posts: 79
Re: Rate of rental unit acquisition?
« Reply #14 on: January 15, 2016, 07:44:22 AM »
We started about 6 months ago. 
Our first duplex was on a 10-year ARM loan attached directly to the business.  This helped get the clock started with obtaining 2 years of income/loan payment history directly for the business.
Our second duplex (purchased about 3 months ago) was on a 30-year fixed through the same bank (who then promptly sold the mortgage to someone else) and was tied directly to my business partner & then quit-claimed to the business.  Including his personal residence, that brought his total properties to 2. 
We are scheduled to close in 2 weeks for 3 additional SFR's.  2 of these will have 30-year fixed through the partner again, and one of them will be 15-year fixed through me. 
This puts us at a total of 7 "doors" within about a 9 month period. 

At this point, our total mortgages are as follows (including personal residences)
Business (LLC): 1
Partner: 4
Me: 2

Our plan, is to continue the personal mortgages for at least the next 18 months until the business can show solid historical performance.  At this point we may be nearing the point where personal mortgages are more difficult to obtain.

Important to note that my partner (who provides all of the capital) already had an existing personal and business relationships with this bank. 

zoltani

  • Guest
Re: Rate of rental unit acquisition?
« Reply #15 on: January 15, 2016, 03:31:21 PM »
I have 3 rentals, bought the first in July 2011 and closed on the third just last month. Honestly, I thought I would accumulate faster, but it is becoming harder and harder to find good deals. Last one was a private deal, house was never on market. Maybe I need to expand out of my current market though.
 

NoNonsenseLandlord

  • Bristles
  • ***
  • Posts: 396
  • Age: 60
  • Location: Eagan, MN
    • No Nonsense Landlord
Re: Rate of rental unit acquisition?
« Reply #16 on: January 15, 2016, 06:58:06 PM »
I purchased a 4-plex every year from 2008 - 2012.  Five total.  TThen a flip in 2013.  And another SFH in the past few weeks.

You can get creative with buying when you have cash.  After you buy a property, rehab if if you need to.  Then 'digest' the property to make sure it is running smooth before buying another.

Anyone can buy properties.  Managing the process takes more work.