Portfolio loans sound like a boutique product for elite investors, however they are simply another loan that a lender keeps in their investment portfolio. This type of loan can be a viable choice, especially if you don’t fit a conventional loan’s requirements. Portfolio loans are a tremendous financing tool for real estate investors that are looking for 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 use this financing avenue to refinance an existing portfolio of properties and then leverage the equity to purchase additional properties, 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.
Continue reading to learn more about the unique benefits of portfolio loans.
What are the Common Uses for Portfolio Loans?
One of the most significant benefits of portfolio lending is the wide range of unconventional scenarios and terms available. Here’s a few common reasons for using a portfolio loan:
- Self-employed borrowers
- Cashflow qualifying investment loans
- Fixing and flipping
- High net worth, low documentable income
- High debt to income (DTI) ratio
- Anything that falls outside of conventional guidelines
What are the Benefits of Portfolio Loans?
Flexibility is Key
The power of a portfolio loan truly lies in its flexibility. Since the lender assumes all the risk with a portfolio loan, they can impose any requirements and terms of their choosing. This can work to your advantage, since the lender can be more flexible in its documentation requirements. The lender will often focus on the borrower’s entire financial situation to determine whether their strengths outweigh any shortcomings. This flexibility allows lenders to tailor the loan terms to fit the unique circumstances of each borrower.
They’re Investor Friendly
Compared with traditional bank financing that may limit the number of assets or capital that can be provided to a single investor, rental portfolio loans don’t come with the same limitations. Typically, there isn’t a cap on the amount of assets, loans, and dollar amounts that a portfolio lender can lend to a single borrower. Portfolio lenders focus more on cash flow and the individual’s business history rather than the borrower’s income and other personal metrics. In some instances, investors may not have to provide personal tax returns if the cash flow being considered by the portfolio lender is based on rent rather than personal income.
For asset-based portfolio loans, high performing assets can be awarded a higher loan-to-value (LTV) and possible a reduction in interest rate for assets located in strong markets.
Borrowers with strong credit can get better deals
Since the portfolio lender holds the loan, they’ll want to strengthen their portfolio with as many high-credit-score loans as possible. Portfolio lenders will work with strong-credit customers by offering great rates, low down payment requirements and higher debt-to-income maximums.
Work Closely with the Lender for more Benefits
Since the portfolio loan remains with the lender, you can work closely with them to establish a good relationship, which is critical for future investments. A quality portfolio lender should be willing to guide you through future loan applications or investments.
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.
If you have any questions concerning portfolio loans for your next real estate investment, contact RCN Capital today to learn more.