By Fred Matera, CIO, Redwood Trust A lack of affordability will lead to near-term weakness,…
Five Benefits of Rental Portfolio Loans for Residential Investors
By Ian Hardcastle, Relationship Manager
The advent of the single family residential portfolio loan has changed the real estate investing landscape and has created numerous benefits for residential investors. Prior to the creation of these rental portfolio loans, borrowers were challenged with finding multiple capital sources, undergoing excruciating underwriting requirements, providing personal guarantees, and were subject to logistical servicing headaches.
Allowing investors to cross collateralize their assets into a blanket portfolio loan opened the door to streamlined access to capital and eliminated many of the difficulties that came with trying to finance multiple assets separately.
Here are five benefits of using rental portfolio loans:
1. No capital limitations or property restrictions
Unlike traditional bank financing that may limit the number of assets or capital that can be provided to a single borrower, a rental portfolio loan does not come with the same limitations. There is usually no cap on the number of assets, loans and dollar amounts that a portfolio lender can lend to a single borrower.
Borrowers were once faced with the challenge of leveraging their assets at a pace set by their local lending institutions. With portfolio loan lenders, investors can leverage at their own pace and grow their portfolio exponentially.
With portfolio loan lenders, investors can leverage at their own pace and grow their portfolio exponentially.
They can do this with the added comfort of knowing that there is a relatively unlimited capital source at their disposal.
There is also no limitation on the number of individual properties that can be financed into a portfolio loan. A borrower can finance five of their rental properties or they can finance five hundred.
2. Asset-Based Lending
A rental portfolio loan is primarily asset-based. As such, the cash flowing characteristics of the properties included in a portfolio generally determine the loan amount and terms. Other types of lenders are usually more focused on the credit metrics of a borrower and often limit proceeds or terms based on personal credit, even when the collateral may be a high-yielding rental property in a strong market.
For an asset-based portfolio loan, high performing assets can be awarded a higher Loan To Value (LTV) and possibly a reduction in interest rate for assets located in strong markets. There is also a reduced headache during the underwriting process as a blanket portfolio loan usually only requires property specific documents to confirm cash flow, value and cost basis.
We do not require full documentation from a sponsor that a traditional bank or a more credit-focused lender would require.
At Corevest, we offer a non-recourse feature for rental portfolio loans. Traditional banks and most hard money lenders will typically require their loans to be full recourse to the sponsor. Our portfolio loans allow the sponsor to bypass the personal guarantee. This is an added benefit for those sponsors who are seeking to keep their personal assets and businesses separate. Specialty lenders focused on rental portfolio loans are usually the only lending institutions that offer this added feature.
Non-recourse financing is often the preferred choice for many established real estate investors. In contrast, local banks will almost always require full recourse guarantees.
4. High leverage, longer amortization and interest-only options
Our rental portfolio loans can allow for up to a 75% LTV, based on the current value of the portfolio. This is an aggressive leverage amount that allows borrowers to unlock the aggregate equity they may hold across a portfolio. Lenders who underwrite assets on a singular basis or traditional banks will have LTV limitations, often below 75%.
We also offer a 30-year amortization schedule, including interest-only options. A local bank, on the other hand, typically requires shorter amortization periods. Combining higher LTV levels with a longer amortization offers borrowers of a portfolio loan more proceeds with a lower monthly payment. This means greater working capital, and provides more options and opportunities for real estate investors to grow their business.
5. Benefits of Consolidation
With a portfolio loan, investors can roll up all of their rental assets into a single loan with one monthly payment and a single point of contact. Having one payment alleviates the added process and stress that can be associated with processing multiple invoices owed to various lending institutions every month. Investors may also be able to set up a direct deposit that takes care of their loan payment for all assets.
This can free up bandwidth and allow for greater operational excellence. Investors can also gain some additional cost benefits such as insurance. Our team often introduces investors to a preferred insurance broker who can, in turn, offer a blanket policy that is typically less expensive than multiple individual policies.
In addition to cost and payment benefits, our investors often build lasting relationships with their single point of contact/portfolio managers, who work to provide them the most competitive quotes and help streamline their due diligence process. Compare this to multiple banker relationships for numerous loans.
Again, these are just some of the benefits of a rental portfolio loan. We know – because we have custom-tailored our products to ultimately benefit residential real estate investors and continue to find new ways to innovate.
Looking to explore your financing options? Corevest can help. We provide attractive long-term debt products for stabilized rental portfolios, as well as credit lines for new acquisitions. For more information about how Corevest can help grow your rental and rehab business, please call Ian Hardcastle at 310.340.7078 or email firstname.lastname@example.org.