Real estate investors looking to scale quickly and expand their residential investment portfolio often run into the same problem fairly quickly – too many financed homes. Most conventional lenders in the U.S. will allow borrowers up to 5 or 10 financed properties either with that lender or financed in general. After that, the available financing is limited or non-existent conventionally. This limits the investors’ ability to scale and grow their real estate portfolio without having more equity. Usually, releasing more equity is either not available or too expensive to make the numbers work. This is exactly where a portfolio loan comes in.
What are the basics of a portfolio loan?
A portfolio loan is one loan cross-collateralizing several different properties and can be used to either purchase, refinance, or release equity from a portfolio of stabilized investment properties. Most portfolio lenders have a minimum of 5 properties and a USD $500,000 loan minimum – there is no maximum number of properties or loan amount. This, in turn, helps the investor avoid the 5 to 10 financed properties limitation that conventional lenders have and will instead consolidate them into one loan.
Here are 5 reasons how a portfolio loan is able to help an investor solve the issue of having too many financed homes, and grant them the ability to scale on their own terms and pace.
Top 5 Benefits of a Portfolio Loan:
- – No capital or property financing restrictions
- – Portfolio specific underwriting – no personal income underwriting
- – Non-recourse and interest-only options available
- – Flexibility and competitive structures with higher leverage and longer amortizations
- – Ease of managing one loan versus many individual loans
With the underwriting criteria in the investment property market continuing to tighten among traditional lenders, the portfolio option provides a streamlined underwriting approach that focuses mainly on the cash flow of the specific properties.
More often than not, the loans are offered non-recourse, allowing the investor to keep a separation between personal and business assets, with no requirements to document the borrowers’ personal income. For investors focused on monthly cash flow, interest-only options are available.
With the recent news of Fannie Mae’s reduction in interest in the investment real estate market and the resulting interest rate increase on investment property loans, the portfolio loan terms are usually more competitive from a leverage and pricing standpoint as a conventional investment property loan, with much more streamlined underwriting and less documentation required.
We believe portfolio loans will continue to be a top financing option for clients looking for increased leverage, competitive pricing, and flexibility when looking at options for their real estate portfolio. Our team is available to review the specific scenario and terms best suited for you. Find out all about your mortgage options when you schedule a 15-minute call with our U.S. Mortgage Specialist here: firstname.lastname@example.org.
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