How Brokers Can Help Investors Scale Their Rental Property Portfolio

Rental properties are the most popular way for investors to build a strong real estate portfolio and ensure long-term wealth. These investments offer consistent income for owners and can offer other key advantages like appreciation and tax benefits. As a broker or lending partner, understanding this asset class helps you grow your business and provide the best service for your clients. After breaking into the world of rental property investing, many of your clients will be looking for advice on how to grow their portfolios, and the challenges that come with scaling up. This also presents an opportunity for lending partners to build trust with their clients and garner repeat business.

Continue reading for our guide on how brokers and lending partners can help their clients effectively scale their rental property portfolios.

Understanding the Scaling Process

Investors looking to scale need to understand the difference between owning a few rentals and managing a large real estate portfolio. As a lending partner, it’s up to you to educate your clients on the challenges that come with scaling and help them plan appropriately. Scaling a portfolio doesn’t just mean acquiring more properties, it also often means developing efficient ways to manage all these properties, and optimizing cash flow through strategic financing strategies. Additionally, investors will need to develop systems for property maintenance and dealing with vacancies (i.e. tenant screening). Beyond that, larger portfolios have more sophisticated legal structures, and working with legal and tax professionals will be crucial for minimizing risk and maximizing tax savings.

Key Lending Strategies for Scaling a Rental Portfolio

Brokers have a number of financing options they can recommend to help clients scale their rental portfolios:

• Traditional Mortgage Financing: Conventional mortgages can always be used to acquire real estate properties, and they offer attractive interest rates as well. However, there are often limits on the number of properties a borrower can acquire using FHA loans, so they are not always a viable option.

• Debt-Service Coverage Ratio (DSCR) Loans: DSCR loans are offered by private lenders, which means they have less stringent requirements and more flexible terms. Additionally, loan approval is based on the income/debt ratio of the property rather than the borrower's income, which can be beneficial for borrowers with less than stellar credit or unconventional income situations.

• Portfolio Loans: Portfolio loans are a way to consolidate multiple properties under a single loan, simplifying monthly payments and often reducing them. For borrowers looking to refinance their existing portfolio or acquire multiple properties at once, they can be a great financing solution.

• Hard Money Loans: Hard money loans are short-term financing options designed to fund the quick acquisition of a property. They are incredibly useful in time-sensitive scenarios, giving borrowers time to refinance or secure more permanent funding for the property once it’s acquired.

Leveraging Refinancing and Equity to Acquire More Properties

One of the best ways to scale a rental portfolio is by utilizing equity from existing properties. Investors can utilize cash out refinance loans or HELOCs to pull equity out from rental properties they own, and use that as a down payment for a new acquisition. The benefit is that this equity is often paid for by the tenants of those properties, so it costs little to nothing for owners. Similarly, borrowers can make use of 1031 exchanges to reinvest profits from homes they are planning to sell, deferring capital gains taxes in the process. This can be a great way for investors to move from a fix and flip property to a more stable, long-term rental investment.

Building a Network to Streamline Portfolio Growth

Investors should build a team of real estate professionals to help ensure their portfolio remains profitable as they scale it. As a broker or lending partner, your job is to connect clients with reliable loan solutions to finance acquisitions. Equally important, however, is an experienced real estate agent to help them source good properties and expand into lucrative markets. Additionally, an accountant or tax professional will be vital for maximizing tax savings and making the most of each investment.

For investors that prefer a hands-off approach, having a good property manager will be vital, especially as their portfolio gets bigger. They can help with day-to-day operations including managing rental payments, filling vacancies, and handling maintenance & repair requests. The cost of management services can vary, so investors will need to weigh it against their monthly income to determine if it’s a financially viable option.

Avoiding Common Mistakes When Scaling a Rental Portfolio

There are also some common mistakes brokers can help their clients avoid when they’re looking to scale. One example is expanding too quickly without taking the time to properly research their acquisitions. As with any investment, due diligence is key in ensuring long-term success; brokers can help their clients by conducting research backed by real-time rent and property value data. Investors also tend to underestimate expenses with rental properties, leading to assets with bad cash flow which only serve as a burden. Similarly, borrowers can sometimes be too eager and find themselves overleveraged and wracked with too much debt. It’s important to only take on as much leverage as is easily manageable, and you should take time to work with your client to understand their finances so you can help them make better, timely loan decisions.

RCN Capital

The best way to save on a real estate investment is to obtain financing from a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance a rental property portfolio, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.