How many mortgages can you have?

Have you ever wondered how many mortgages you can have at once? In 2009, Fannie Mae updated its same-borrower policy, revising the maximum number of conventional mortgages a single individual can have from four to 10.

In this post, we will discuss what it takes to have multiple mortgages (including an example), the advantages and disadvantages of having multiple mortgages, and how to manage them.

Investing in Real Estate with Multiple Mortgages

While you can take out up to ten mortgages, the qualifications become more stringent after your fourth. Here’s a side-by-side comparison:

When shopping around, ask mortgage lenders about their additional loan requirements, if any.

Benefits of having multiple mortgages

Multiple mortgages offer several benefits, including:

• higher rental income: The more properties you let out, the higher your rental income. One triplex could bring you $3,000/month, and five could net you $15,000/month.
• easy to catch fire: More assets and bigger returns also mean you can achieve financial independence and retire early (FIRE).
• Larger, More Diversified Portfolio: Owning multiple properties allows you to expand into different neighborhoods and markets. You may find that certain aspects of your portfolio generate better returns than others and look for comparable properties.
• more tax benefitsReal estate investors can enjoy additional tax incentives when owning rental properties, including depreciation and cost segregation. These can help reduce your tax burden.
• probability of matchingLoans: If you have multiple mortgages through the same lender or insurance company, you can sometimes combine all of your payments into a single payment, which makes tracking easier.

Complications of multiple mortgages

Having multiple mortgages can also have its downsides:

• high loss potential: The more assets you have, the higher your expenses. You can profit from rental income, but only as long as you have tenants willing to pay the rent you want, and vacancies, upgrades, and remodels all eat up your profit.
• hard to manage, Ten properties usually take more than two to manage. You need to put in extra time or hire a rental property manager to do this.
• expertise requiredYou don’t need to be an expert investor to rent out a room or the bottom half of your duplex. The more properties you own, the more you need to know to make sure they are all in good condition and well maintained.
• strict guidelines: If you already have four loans, many lenders won’t offer you another conventional loan, and those that do will have tougher requirements.
• more paperwork: A higher mortgage usually means more of everything else—more bills, insurance requirements, liens, maintenance, legal documents to fill out, etc.

How to manage multiple properties

Establish processes that work for you even before you expand your portfolio. At the very least, you need a rent account to keep track of your tenants’ charges, balances and monthly rent payments. Your ledger should also include information such as the principal balance for each of your assets, payoff timelines, mortgage payment due dates, and notes outlining potential maintenance upgrade needs.

If you can think of streamlining your processes, you can create templates for just about anything. The more you can automate, the more time you can spend on other tasks.

Also, don’t rely on your lenders to tell you when mortgage payments, insurance and property taxes are due. Paying on time is your responsibility, not theirs. That said, if you have multiple lenders for each of your properties, it can be beneficial to keep your payments from overlapping. This will help you identify when and where your money is going.

Financial Multiple Mortgage Options

Affordability is often the most common barrier to having multiple mortgages. Qualifying for a loan is sometimes difficult enough!

If you cannot secure a conventional loan for your next investment property, here are some other options to consider:

hard money loan

Hard money loans are secured, short-term loans from private lenders or individuals. Rather than requiring excellent credit and a low LTV ratio, hard money lenders accept tangible assets as collateral—often real estate. If you default on this loan, you risk losing that collateral.

The repayment period for a hard money loan is typically three months to a year, but there are longer ones. You can also expect to pay a higher interest rate for them, usually 10-12%.

cash-out refinance

Cash-out refinance to convert your home equity into cash that you can use for your next investment. This is the cornerstone of the BRRRR method and a great way to make extra cash without taking out a loan or paying interest.

This is how it works:

Let’s say you have a mortgage loan for a $500,000 property that has been paid down to $200,000. This means you have $200,000 left on your loan and $300,000 in equity. If you want to convert some of that $300,000 into cash, you can take out a new mortgage—say for $250,000. Your new mortgage is $250,000, while the other $250,000 is cash in your pocket.

portfolio loan

This loan is a type of mortgage that a portfolio lender may offer. Instead of selling your investment portfolio to another company, your lender keeps the portfolio loans in-house. This lets them set up more flexible mortgage terms, often to your advantage.

However, portfolio lenders are opening themselves up to risk. Portfolio loans don’t have to meet conventional requirements, but if they don’t, these lenders can’t sell them on secondary mortgages.

blanket mortgage

Blanket mortgages let you finance multiple investment properties under a single mortgage agreement. These mortgages make life much easier for real estate investors because they have very little paperwork to keep track of.

Furthermore, suppose you decide to refinance or sell one of the properties you own within your blanket loan. In that case, a clause “releases” the property from your original mortgage without impeding other properties under the “blanket.” This means that you do not need to repay the entire loan.

Is Having Multiple Mortgages Right For You?

Owning more properties also means more work and increased expenses. If you have that ability, owning multiple assets can be more stressful than if you lack that ability.

However, if you have investment experience and a good business strategy, multiple mortgages can yield significantly higher returns. Are you ready to expand your real estate portfolio? Check out more of our expert tips and strategies on investing in real estate.

Note by BigPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.