Posted by Michael Morrongiello on April 19, 2000 at 22:18:44:
Ben:
Most lenders will want to look at each home individually and consider refinancings on EACH home that would be within their guidelines. However a good relationship with a local bank lender may consider providing you with a “Blanket” lien mortgage that would provide one loan secured by all 5 properties.
As for specific lenders in your area ask around, talk with some mortgage brokers, etc.
Michael Morrongiello
Portfolio Financing… Can anyone provide some insight? - Posted by Marshall
Posted by Marshall on April 19, 2000 at 10:20:22:
Can someone explains Portfolio Financing vs. Conv.??
Marshall
Re: Portfolio Financing… Can anyone provide some insight? - Posted by Ben (NJ)
Posted by Ben (NJ) on April 19, 2000 at 11:09:36:
I own a large portfolio of tax liens which I borrow against with a bank. The way it works is when you reach a certain amount, say X, you can put up the portfolio as collateral and then borrow 80-90% of X. However, it does not stop there,the beauty of the system is that every new certificate I buy, I can then turn around and borrow 80-90% of its value in order to buy the next certificate, and so on. Therefore I am continually borrowing money at one rate, investing it about 10 points higher and keeping the spread. You have to make monthly interest payments and pay some bank fees too but overall this kind of leverage leads to exponential growth. I read a saying somewhere that stuck with me, it went “the difference between the wealthy and the very-wealthy is the proper utilization of leverage”.
Re: Portfolio Financing… Can anyone provide some insight? - Posted by Michael Morrongiello
Posted by Michael Morrongiello on April 19, 2000 at 10:44:37:
Coventional Mortgage Lenders sell their mortgage loans in the secondary market to FANNIE MAE or FREDDIE MACK, which are “quasi” govenment back organizations and investors of loans. Many times they will retain the servicing rights to the loans as a profit center even though they have sold the loans. These organizations then “bundle” these loans up in to larger pools or blocks of loans and sell securites to smaller investors that are backed by the loans.
A Portfolio mortgage lender is tyically retaining the servicing and the loans in their own portfolio. They are not selling off the mortgages or relying on FANNIE MAE or FREDDIE MAC of liquidity. Because of this they sometimes can be slightly more flexible in their underwriting requirements.
Michael Morrongiello
Can anyone provide some insight? - Posted by Steve C., Remax
Posted by Steve C., Remax on April 19, 2000 at 15:28:34:
Ben,
This is a slight diversion from the subject, but I’m interested in what you’ve done.
I live in Texas, and tax lein sales are of interest to me. However, the cash required to hold them through the 6-24 month redemption period has made it seem a bit onerous. Being able to borrow against them would have great advantages.
By “investing it about 10 points higher”, are you referring to an assumed rate of return of owning the certificates, or investing in something else (paper?)?
Also, what’s the downside of that much leverage. Your 80-90% LTV isn’t bad, and offers some cushion, but it kind of seems like a line of dominos waiting to be toppled.
Your thoughts would be appreciated.
Re: Portfolio Financing… Can anyone provide some insight? - Posted by Ben (FL)
Posted by Ben (FL) on April 19, 2000 at 16:22:40:
I’m a little new (getting “not-new” fast) and sometimes a little slow. The topic of portfolio financing caught my eye, and I began to wonder this:
If I own, say, 5 SFRs that I am renting out, with a combined equity of $100,000, would I be able to borrow money with that equity as collateral? If so, who lends money like this?
Here are the details…(long) - Posted by Ben (NJ)
Posted by Ben (NJ) on April 19, 2000 at 16:30:49:
it is not as risky as it sounds, in fact if the bank understands the instrument, they love the idea. Each lien represents approximately 2% of the market value of the property, (may be more or less depending on how long it is held but since one can foreclose after two years it should never be more than 10-15% lien to value) banks are loaning up to 70% ltv or more every day, so these numbers sound GREAT to them. Add to
that the fact that tax liens are top priority, above mortgages, judgments, even federal tax liens and you have nearly no risk whatosever. My bank requires purchases of liens on good residential properties only and some commercial but no vacant land or industrial so there is a lot of risk cut out there. If the liens arent paid, you get the property which is a grand slam. Finally, if you are well diversified (say you have a thousand liens, even if a few go totally bad, which I have yet to experience even one in five years, the return on the rest will easily balance it out. As to the spread, the maximum rate one can get here is 18%,plus penalties, but depending on timing and getting a property every once in a while, the overall return can far exceed that. Therefore, if I borrow at 8%, invest it at 18%, I can easily get that spread of 10% or more. I thought Texas was a deed state so the rules may be different than NJ which is a lien state.