Investors looking for cash-flowing real estate may consider single-family homes for rent. Building a portfolio of single-family rentals can be a more accessible entry into real estate for investors looking to deploy smaller amounts of capital than would be required for larger properties.
What Is a Single-Family Rental (SFR) Portfolio?
A single-family rental portfolio is a group of residential properties purchased in a single transaction or acquired over time.
Single-family rentals (SFRs) are residences that are owned and operated as rental properties. They are not occupied by the owner, but rather the owner of the home rents the property to a tenant that pays rent.
How to Find and Qualify for SFR Portfolio Loans
According to Matt Rubin, Associate Director at Lev, there are a number of vehicles to secure financing for single-family rental properties, one of which is conventional bank financing. For bank financing, borrowers will need to show a track record of owning those types of properties. They will also need to show that they have sufficient liquidity and net worth and provide full recourse.
Another option, Rubin explained, is to go to private debt funds that will charge higher interest rates. Those funds typically have credit score requirements, but they are more flexible than banks.
To find those lenders, it’s best to have a company like Lev come in and help, Rubin said.
“If you don’t have a relationship with a lender who can provide you financing, that’s where you can tap into the brokerage world to give you some sort of guidance and really add value to the process to find you the right type of financing,” Rubin added.
In addition to securing financing, actually sourcing and purchasing SFR portfolios “is certainly an art,” said Kristen D. Conti, Broker-Owner at Peacock Premier Properties. Oftentimes SFR portfolio deals “are done between servicers and hedge funds or large institutional buyers and never reach the smaller individual investors,” Conti said.
However, in some instances, these portfolios can be purchased individually, Conti added. She recommended browsing commercial sites like Loopnet, Crexi, Quantum Listing, Ten-X and Commercial Edge. For unlisted options, try connecting with an investment sales broker.
The 5 Best SFR Lenders, According to Experienced Brokers
There are a number of great SFR lenders to choose from, including both banks and private lenders. According to Rubin, though, bank financing is “more of a localized play.” Local banks care more about geography and will typically lend on SFR portfolios if the properties and the borrower are located within the bank’s footprint.
Both Rubin and Conti recommended a few different SFR portfolio lenders:
1. Roc Capital
According to Rubin, Lev does a lot of business with Roc Capital.
“They’re a huge national SFR lender that has a really reputable and trustworthy process,” he said. “They understand how to work with a client, and they provide certainty of execution.”
Roc Capital, unlike many lenders in the SFR space, also has a national footprint, meaning they’ll lend anywhere.
For rental portfolios, some of their lending terms include:
- Property types: single family, 2-4 unit, townhomes, PUD, warrantable condos, 5-8 unit properties allowed up to 15% of loan amount
- Loan amount: $150,000 to $50 million
- Loan types: 30-year term, fixed-rate mortgage (fully amortizing); 5/6, 7/6, and 10/6 hybrid ARMs (Partial interest-only or fully amortizing)
- Purchase or rate-term refinance: 80%
- Cashout refinance: 75%
2. Lima One Capital
Lima One Capital is a good SFR lender for borrowers who wish to “fix and flip,” Conti said. Lima One Capital has branded itself the “premiere fix & flip lender.” Their Fix and Flip loans are meant for SFR investors who are buying distressed properties, rehabbing and selling.
Their loan terms include:
- Up to 90% LTC, 75% LTV
- Loans from $75,000 to $5 million
- 13-, 19- and 24-month term options
- Non-recourse available
- Interest-only payments
- 1-4 unit residential properties
- In-house construction management
3. CoreVest Finance
According to Conti, CoreVest Finance is a good lender for those who plan to grow a large portfolio. Their bridge loan terms include:
- Individual or multiple properties
- Single-family, condo, townhome, multifamily properties
- Loan amount: $200,000 to $50 million
- Up to 80% LTC
- 18- to 24-month term
- Fixed and floating-rate options
- Revolving credit options
- Non-recourse options
- Nationwide lending
4. First National Bank of America
Conti also recommended First National Bank of America as an option for those who want a traditional bank loan. Their commercial loan terms include:
- Low income housing and tax credit program for apartments and historical renovations
- SBA and USDA loans
- Apartments, mixed-use, retail and office
- 1-4 unit family rentals
- Non-recourse IRA loans
5. Haus Lending
Finally, Conti recommended Haus Lending, as they have a specific SFR portfolio loan program. Their terms include:
- Property types: single family, 2-4 units, townhomes, PUD, warrantable condos; 5-8 unit properties allowed up to 15% of loan amount
- Loan amount: $50,000-$50 million
- Loan types: 30-year fixed rate mortgage (fully amortizing) 5/6, 7/6, 10/6 hybrid ARMs (partial interest-only or fully amortizing)
- Maximum loan to stabilized value: 75%
- Term length: 5, 10 and 30 years
Do Your Research and Connect With a Broker
When looking for loans on a SFR portfolio to buy, it’s important to do your due diligence and have a clear idea of which deal will help you invest successfully. It’s a good idea to contact a broker at a firm like Lev to get connected to the right lender for your specific needs.