Greetings, Getting started and looking to do a 1031 Exchange and purchasing multiple properties. I have been reading that Blanket loans facilitate this process, but in talking with lenders they do not recommend because the loans can be difficult to work with when trying to refinance or make adjustments. Does anyone have experience (Good/Bad)?
@Corey Jenrich , a blanket loan can help. But it's not a "have to have" if you've got the right lender team. I've had more clients doing the diversification exchanges (purchasing multiple replacements) with individual loans for each than I have with blanket loans.
The key if you're going to get one loan is to make sure you have a partial release clause and substitution of collateral clauses that allow you to sell individuals and buy individuals down the road without requiring a recast or pay off of the entire loan.
The blanket loan could give you some obvious benefits with fewer origination fees and maybe a larger ceiling on your principal.
But downstream you may see some limits. The partial release language is crucial. And since you effectively have all properties acting as collateral for each other, default is huge risk. This means any given asset under-performing threatens all the rest.
Most experienced lenders should work with you to customize.
Even so, we rarely see blanket loans among 1031 clients.
The concern I have with getting multiple loans is time frame. This may just be inexperience on my part but the thought of getting multiple loans in a 6month period to satisfy the 1031 requirements seems daunting. Is it common and I am worrying about nothing in that regard?
Thanks for the response
Excellent point about the risk we had no considered. The idea was to diversify away from a single property and in a way we are potentially making things worse. More research needed. Thanks
@Corey Jenrich , Well you can't relax. But you can get several individual loans in quick succession. Especially if you're not going through the hoops of conventional/conforming.
But if it's a big concern to you then consider a hybrid approach - a private blanket loan and then refi out your purchases one at a time into better financing. A good private lender wont break the bank because you won't have the loan that long for interest to be a problem.
Still make sure there's no pre payment and partial release clause