Deciding between financing options

Currently I own two SFR outright. They are worth approx $100k each. I want to buy 8 more for a total of 10 rental properties. Options are:

1.) Do a cash out-refi on both of them. Let's say, worst case, they appraise for $90k, so a 75% LTV cash-out refi would yield me $67,500 each or $135k of cash to buy more properties. If I can find properties in good enough condition to get conventional loans, I'll do that and just use the cash for down payments and reno expenses. For properties that won't go conventional, I can buy them with cash, renovate, rent them then do another cash-out refi. AKA, the BRRRR method. (Buy, Rehab, Rent, Refinance, Repeat)

2.) A local lender has offered me a $1M OGL (Officer Guidance Line) to buy up to 8 more properties, using the 2 that I own as equity injection. The interest rate is 4.75%, which is similar to a conventional loan, but it can adjust every 5 years and is amortized over 20.

There are pros and cons with each option.

Option 1 pros: 30 year fixed rate mortgages vs 20 year mortgages that can adjust
Option 1 cons: Pain in the ass. Must go through loan process all over again with every individual house.
Must finance in my name, then transfer into my LLC later and hope it doesn't trigger the acceleration clause. (Or set up land trusts and make my LLC the beneficiary.)
Since most of the properties I'm interested in are fixer-uppers, I probably need to do the BRRRR method, which means I have to tie up most of my cash until I do the cash-out refi, which means I can only buy one house at a time, meaning it will take longer to reach my goal.

Option 2 pros: Easy. Go through underwriting once, then go buy!
Can buy multiple houses at once, so I can reach my goal faster. (Basically I can buy 3, then when I get them rented I can buy 3 more.)
No concerns about property condition derailing loan.
Can buy houses in the name of my LLC.

Option 2 cons: 20 year amortization vs 30
Interest rate can adjust every 5 years.

Which would you do? A couple more considerations:

I'm 46, so I had planned to pay down the houses over 20 years anyway, so they're free and clear when I retire. However, it's nice to have the 30-year option, especially with the fixed rate.

I can also do somewhat of a hybrid. Use the OGL to buy fixer-upper houses, then use conventional mortgages on houses that can go that way, or on houses that won't cash flow on a 30-year amortization.

Thoughts? Is there another consideration that I'm missing?



  • Interesting. I have not heard of option 2 bedore. Basically they would be using the 2 you own now as down payments for the other 8?
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  • edited May 2016 Posts: 14
    Effectively, yes. They look at the LTV of my total portfolio. Each time I buy a property, the OGL can fund the entire purchase price and closing costs (assuming the entire portfolio's LTV doesn't exceed 70%). Then I just use my cash for renovations. 
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