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Portfolio loans are a tremendous financing tool for real estate investors that are looking for a long-term funding on multiple rental properties and larger portfolios. Being able to get a single loan on multiple properties makes for easier management of loan payments and often allows an investor to receive a better rate. Many investors will often use this financing avenue to refinance an existing portfolio of properties to then leverage the equity to purchase additional properties, to be able to use as a down payment on properties in competitive markets to ward off competition or even to transition from owning single-family rentals to larger multifamily or commercial buildings. While many lenders over this type of financing, it’s important for investors to know what to look for in order to choose the best rental portfolio loan option.
Leverage is Key
When choosing the best portfolio loans, it’s all going to come down to what the investor is ultimately looking to do with the properties they are looking to leverage. For instance, if an investor is looking to purchase a portfolio of homes with the intention of fixing them up and then selling them off, the investor would need to find a lender that specializes in short-term fix and flip portfolio loans. These loans typically have a term of 12 to 18 months and provide monies for both the purchase as well as the renovation costs. Investors should expect leverages around 90% loan-to-cost (meaning the initial advance plus any renovation costs) or 75% of the after-repair value.
Rates for shorter term fix and flip loans are often higher than their longer-term counter parts and typically range from 6.50% to 8.00%. However, most types of portfolio loans in this category will be interest-only loans, meaning the investor will make interest payments during the course of the loan and then pay the principal and an outstanding fees in a balloon payment at the end of the loan term.
Investors Seeking Longer-Term Portfolio Loans Have Unique Options
For investors that are looking for longer-term portfolio loans, there are several options they should be aware of, again coming down to ultimately what they are looking to accomplish. One of the first options would be a blanket mortgage or blanket loan. These portfolio loans typically have terms of 5, 7, or 10 years and are meant as a way for investors to bundle five or more stable rental properties into a single loan. This ensures one loan payment for multiple properties and typically allows an investor to pay a lower interest rate than they would pay if each property was individually financed. Investors should expect leverages around 75% LTV with rates ranging from 3.50% to about 6.50%. This is a great option for an investor with rental properties that have tenants in place and are cash flowing as many lenders will have minimum stable occupancy requirements. Typically, lenders will be looking to see the investor has owned the properties and have tenants in place for anywhere from 3 months up to a year.
A second option would be for a rental portfolio loan. These loans typically have terms of 5, 7, 10 or even up to 30 years and allow an investor to refinance or cash-out an existing portfolio of properties to then use that money to continue to expand their real estate empire. Investors should expect leverages around 75% LTV for refinances and 70% on cash-outs and again should be aware of any seasoning requirements for the property which are typically anywhere from 3 to 9 months. Rates for these types of loans also typically range from 3.50% to about 6.50% and like blanket loans allow an investor to only have to worry about a single loan payment for multiple properties.
Portfolio Loans Are a Great Method To Advance to the Next State of an Investing Career
For savvy investors that have growing real estate portfolios, portfolio loans can be a tremendous way to get to the next stage of their investing careers. However, it's important for investors to be aware of what products are available and what financing options will be best for their future investment strategies.
In today’s competitive investing landscape, having options and increasing your leverage is important and RCN Capital is dedicated to providing real solutions tailored to your real estate investing needs.