For investors who own large portfolios of rental properties, managing and paying the loans for each one of their multiple investments can be a complex undertaking. It can become a full-time job just to manage each financing structure and optimize them for the best interest rate and cash flows possible. However, there is a great solution that solves many of these problems, and that comes in the form of portfolio financing.
As a broker or lending partner, offering rental portfolio loans gives you a great financing structure to offer to established investors who are focused on improving cash flow or simplifying their monthly payments. Read on as we explore the basics of these solutions, and how they can become a game-changer for your lending business.
A rental portfolio loan is a financing structure that allows real estate owners to consolidate multiple property loans into one, simplified loan payment. Unlike traditional mortgages, these loans typically come in interest-only varieties which range from 12 months all the way up to 10 years. They are designed for investors who are looking to maximize cash flow in their portfolios or large portfolio owners who do not have conventional W-2 income. Lenders typically evaluate loans based on the overall performance of the portfolio rather than individual properties, and also the borrower’s experience and track record rather than their personal credit history.
Rental portfolio loans can be a massive benefit for large-scale investors who want to simplify management and monthly payments for their properties. Consolidating multiple properties doesn’t just make paying the mortgages easier; it also often reduces the fees associated with having separate loans. A well performing portfolio might be able to secure more favorable terms than each property might be able to obtain on their own. The interest-only aspect of the structure also helps improve cash flow, allowing investors to focus their funds on other projects or new property acquisitions.
The advantages aren’t limited to investors either. Offering portfolios loans allows you to serve experienced investors who are used to growing their real estate portfolios quickly, which means plenty of opportunities for repeat business. They can also give you a competitive edge in the lending market, allowing you to position yourself as a flexible financing solution provider. Not to mention, the loans often come with higher dollar amounts, which means better commissions for you when brokering them.
There are some key scenarios where a rental portfolio loan can be the perfect fit, and this is when you should recommend them to a client. For large portfolio owners seeking to refinance multiple properties at a time, usually to obtain better interest rates, these loans can take care of that goal quickly and efficiently. Investors expanding into new markets might also seek out one of these loans so they can make multiple purchases simultaneously.
Generally speaking, investors who prefer a long-term hold strategy and have accumulated multiple properties will be the ideal candidates for this financing structure. They allow real estate investors to optimize cash flow for their existing investments, putting them in a better position to acquire new properties for their portfolios.
If you are a lending partner, then you know that one of the roles you play is an educator. When introducing rental portfolio loans to your clients, you may face some common objections. The most common of which is that it’s only intended for large portfolios. In reality, most lenders have minimums of 3-5 properties for these loans, which make them a versatile tool in a number of deal scenarios. As mentioned, underwriting is also typically based on the overall performance of the entire portfolio, which allows properties with less than stellar DSCR, for example, to still qualify for financing. Loan structures in general are very flexible, with both single-family and multifamily options, as well as short-term bridge and long-term hold options for investors who require a certain loan period.
How do you get the conversation started about portfolio loan options with your clients, though? First, identify the clients that would be good candidates for these loans, and ask them about their investment plans for the near future. Then, highlight the advantages of these programs, including the financial advantages, scalability, and the convenience factor. If possible, use real world examples of how investors have used these loans in the past to save on loan closing costs, streamline payments, or help them scale up their portfolios. It also helps to offer multiple loan options with different terms so you can match them with the financing structure that best fits their scenario’s specific needs.
To help your clients maximize the returns on their next investment, partner with 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 and lending partners. If you are looking to offer rental portfolio financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.