Is a portfolio loan right for you? Here are 5 benefits to using a portfolio loan for your real estate investments.
What’s a Portfolio Loan?
A portfolio loan is a type of loan that covers multiple real estate properties, originated by a private lender. These loans are retained by the private lender so they are not offloaded onto the secondary mortgage market. Like the name, a portfolio loan stays in the lender’s portfolio, never entering the market. These loans are used by lenders because it allows them to pick the standards for the loan, bypassing the federal standards of Freddie Mac and Fannie Mae. Many investors choose portfolio loans when purchasing a property if they already have multiple properties or do not qualify for traditional lending. Portfolio loans are known to have speedy closing times, making it a top choice for investors who need cash fast to close on a property.
5 Benefits to Using a Portfolio Loan
Flexible Qualifying Standards
Investors that do not meet the traditional requirements for a loan use portfolio loans to leverage themselves in the real estate market. If one does not meet the qualifications of a traditional loan, a portfolio loan offers them more flexibility in the underwriting process. Some defining factors that would make an investor choose a portfolio loan are:
- Being self employed
- Having bad credit
- Not meeting strict loan guidelines
The flexibility of a portfolio loan bypasses these common roadblocks on traditional loans. The underwriter accesses the risk associated with your loan and calculates an appropriate interest rate. If the loan is failed to be repaid, it is defaulted on the lender. Although there are many benefits to using a portfolio loan, these loans will have higher interest rates due to the risk associated.
Consolidation of Loans
For investors with multiple assets, they can consolidate their loans into a single loan with one monthly payment and one point of contact by using a portfolio loan. When you are managing multiple rentals, it is wise to consolidate your existing loans into one. You will be able to grow your portfolio faster and improve your debt to income ratio when you consolidate your loans into one single payment. You are less likely to miss a payment, and will also pay less in processing fees.
Non-Recourse Options Available
Non-recourse debt is a type of loan that is secured by collateral, usually being one’s property. There is elevated risk with these loans since the lender is relying on collateral if the loan is not repaid. There is also the risk that the collateral’s value could drop over the course of the loan. Buyers take advantage of non-recourse loans to secure opportunities that wouldn’t have been possible and to lessen their personal liability. Lenders cannot hold these buyers liable if the loan is not repaid.
Competitive Structures with Higher Leverage and Longer Amortizations
When you use a portfolio loan to finance your properties, you are entitled to higher leverage and longer amortizations than traditional loans from a local bank. Our portfolio loans offer up to 75% LTV with amortization periods ranging from 18 months to 30 years. For investors wanting to make their impression on the real estate market, having access to higher leverage is a competitive advantage. Make the most out of the time you spend in the real estate market by choosing a portfolio loan that offers higher leverage and longer amortizations.
Close Relationship with Your Lender
When using a portfolio loan, you will be working with the same lender throughout the entire life of the loan. You will develop a close relationship with your lender, allowing for better communication regarding your payment period. Developing connections in real estate can be more valuable than purchasing property. Create your own real estate team that’s on your side throughout the life of your portfolio loan by using a private lender. Private lenders are known for having better connections within the community, which can also be helpful for an investor planning to buy a distressed property.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.