What are Rental Portfolio Loans?

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This article was submitted by Kiwi. Read our Editorial Guidelines for more information.

If you are a real estate investor looking to grow your portfolio, you will be aware of the difficulties of obtaining sufficient funds. You may have to meet stringent eligibility criteria, offer a personal guarantee, and face complex debt management issues.

Luckily, there is a solution to the confusion. Rental portfolio loans ease the difficulties of financing multiple rental properties by allowing you to use one as collateral for a loan. This can simplify the process of accessing well-organized capital for your investments.

In this article, we will go through the basics, advantages and disadvantages of rental portfolio loans, and how they can help you grow your rental business.

What are Rental Portfolio Loans?

A portfolio loan enables a single lender to provide financing for multiple rental properties at once, combining them into a single loan with a single payment. Rental portfolio loans are typically more flexible with terms than traditional or comprehensive loans, offering eligibility requirements and custom-tailored loan terms. These portfolio loan options are offered by private and hard money lenders, created to meet the specific demands of real estate investors.

Despite certain benefits, rental portfolio lenders may impose higher interest rates, fees or penalties than a local bank to reduce risk. This may appear in a rate that is higher than the bank rate.

If you are seeking long-term financing for multiple rental properties and are looking to build a more comprehensive portfolio, you may want to consider a portfolio loan. This loan type is much easier to manage than multiple loans from multiple lenders at once, while potentially offering more attractive terms.

Can be used for portfolio loan cash-out refinance or new acquisitions. This is especially helpful in competitive markets, allowing investors to acquire the assets they desire.

Benefits of Rental Portfolio Loan

After you have acquired five or more rental properties, it is beneficial to consider them collectively as a portfolio rather than as individual properties. Doing so can provide benefits such as increased efficiency and cost savings. Let’s examine the benefits of adding portfolio loans to your real estate investment strategy.

An easy loan origination process

A rental portfolio loan is based on the value of the asset, such as the income generated from the properties within the portfolio. In contrast, traditional lenders look at your creditworthiness, employment history, debt-to-income ratioAnd limit the loan amount and terms to your personal finances, even if the assets are cash cows!

The rental portfolio loan requires paperwork related to the property to verify the income, value and original cost. You don’t need to worry about the cumbersome bank application and underwriting process. This helps you save valuable time and energy.

Loose asset restrictions and capital limits

Rental portfolio loans offer much more flexibility than traditional financing, often with no limits on the number of assets or capital a borrower can access.

Rental portfolio lenders allow you to manage your investment holdings, allowing for expansion beyond the capability of traditional lenders. They generally don’t limit the number of properties you can finance and often don’t require that the properties meet strict minimum mortgage standards. This is a perfect option if you’ve got distressed properties that require more rehab.

High leverage and interest-only options

When using a standard banking institution or lender, there are usually stricter limits on the loan-to-value (LTV) ratio. However, with rental portfolio loans, it is often possible to have higher LTVs — as much as 75% — under certain circumstances. Plus, these loans often offer the possibility of making interest-only payments, in which you won’t make any principal payments on the loan. The money saved early in the loan can be useful if you want to increase cash flow and cash-on-cash returns on the project.

With a rental portfolio loan, you can combine all of your rental properties into one loan and make one payment each month, potentially simplifying the process of dealing with multiple payments for multiple lenders. This eliminates additional stress (as a busy landlord, you have enough), allowing you to use your time more efficiently and focus more of your bandwidth on growing your business.

One monthly payment can help you save money. A lending partner that offers portfolio loans can help you structure a loan with financial advantages compared to individual rental properties. You can establish a lasting relationship with one point of contact instead of several different bankers across different loans. It is helpful to work with a lending partner who can provide the best quotes and helps streamline the due diligence process.

Options that meet the unique needs of real estate investors

A rental portfolio loan typically comes with terms of up to five, seven, 10, or even 30 years and allows you to finance an existing portfolio of properties in order to use that money to continue expanding your real estate empire. Allows the portfolio to be refinanced or cashed out.

When refinancing or cashing out, you should assume a loan-to-value ratio of around 75% and 70%, respectively. Bear in mind that some lenders may require you to hold the property for a certain amount of time, usually from 3-9 months – this is called a seasoning period. With a rental portfolio loan, you need to manage only one loan payment for multiple properties.

finding a lender

If you are looking for a rental portfolio loan, the first step is to find a lender. It is essential to compare several lenders and inquire about interest rates, fees and loan requirements before choosing one.

If you already have a relationship with a lending partner, ask if they offer rental portfolio loans. Your current or former relationship may make them more likely to help you. Also, seek advice from a qualified property financing specialist, preferably someone experienced in working with real estate investors, to help you understand which loan option is best for you.

final thoughts

Real estate investors who may not be eligible for traditional bank financing may find portfolio loans to be quite beneficial. They offer more liberal loan criteria and may offer more attractive loan terms. This type of loan can be a great option for those looking to expand their rental business. The first step is to find a lender you can trust to get the best terms and provide expert advice on the best financing strategies needed to grow your rental business.

This article is submitted by Kiwi

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Disclaimer: The above is provided as a convenience and for informational purposes only; It does not constitute an endorsement or approval by Kiavi of any product, service or opinion of that corporation or organization or individual. The information provided does not, and is not intended to, constitute legal, tax, or investment advice. Kiwi assumes no responsibility for the accuracy, legality or content of any external content sources.

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

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