Opinions on Blanket Mortgages
Dulce DavisPro Member
Member since 2020 · 62 posts · 17 votesOpinions on Blanket Mortgages
Most Popular Reply
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
2yI'm not a fan. Just this morning I was working on a modification of a blanket construction deal where the borrower is building 3 new construction single family homes. There was an issue with one of the three projects and it has been delayed a few months. We're solving the issue, but the blanket does complicate it. Just make sure you get a "Partial Release Clause" where the amount you have to pay down on the loan is prescribed up front when you sell a property in the blanket. That's the big issue I usually see with them. They are do-able, but individual deals are usually easier on the exit.
7 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Dulce Davis
Some private firms would consider blankets but they are gonna cost 2x traditional financing
I would take the one with no mortgage and leverage that to buy another and keep doing that - also once in a while may consider selling some inventory to get more cash
7e investments53 Reviews - 2yTy CouttsBusiness MemberLender · Denver, CO · Member since 2022 · 467 posts · 230 votes
Hey Dulce,
Blanket mortgages can be a useful tool for real estate investors looking to scale their portfolio efficiently.
Pros of Blanket Mortgages:
1. **Streamlined Financing**: Instead of managing multiple loans, a blanket mortgage consolidates several properties into one loan, simplifying paperwork and payments.
2. **Efficient Cash Flow Management**: With a blanket mortgage, you have a single monthly payment, which can make cash flow management easier.
3. **Flexibility for Refinancing and Selling**: Blanket mortgages can offer flexibility in refinancing or selling properties within the portfolio without affecting the entire loan.
Cons of Blanket Mortgages:
1. **Risk of Cross-Collateralization**: All properties are typically used as collateral, so if one property underperforms or defaults, it can affect the entire portfolio.
2. **Higher Risk and Requirements**: Lenders may have stricter criteria for blanket mortgages, including higher down payments, reserves, and interest rates compared to traditional mortgages.
3. **Limited Lender Options**: As you mentioned, finding lenders willing to offer blanket mortgages can be challenging, especially in specific regions like Texas.
Considerations for Your Situation:
Given your portfolio of 5 SFRs with varying mortgage balances and property values, a blanket mortgage could potentially help streamline financing and leverage your equity for further investments.
- **Risk Management**: Assess the risk of cross-collateralization and ensure you have contingency plans in place for potential property underperformance.
- **Alternative Strategies**: Continuing with delayed lending (refinancing after repairs and tenant placement) has its merits, allowing you to build equity and stabilize cash flow property by property.
Please feel free to DM me. I believe we can do these mortgages at Aslan. Let’s discuss some more! You can find my contact info in my profile.
Ty Coutts - Aslan Home Lending 544 Reviews - Member since 2020 · 62 posts · 17 votes2yYes I thought about leveraging that one too. My plan was to start selling a house or 2, in maybe 8 months once the tenant pays down the mortgages a bit more. Thank you!
Quote from @Chris Seveney:
@Dulce Davis
Some private firms would consider blankets but they are gonna cost 2x traditional financing
I would take the one with no mortgage and leverage that to buy another and keep doing that - also once in a while may consider selling some inventory to get more cash
- Member since 2020 · 62 posts · 17 votes2y
Quote from @Ty Coutts:
Hey Dulce,
Blanket mortgages can be a useful tool for real estate investors looking to scale their portfolio efficiently.
Thanks so much for the detailed response. I dont believe I like the idea of one bad property putting all at risk. Plus if the requirements are tougher ($$$), that would hurt a smaller investor as I am. Looks like I need to stay the course as-is.
- Lender · Member since 2021 · 495 posts · 130 votes2yPortfolio or blanket mortgages are a great tool in the right setting. They can be convenient to do (one loan versus 5 in this example) and save on processing costs (versus an individual loan). However, you marry the properties together for better or worse. One particular pain point investors find is selling or refinancing one property out of the bundle. There is normally a partial release premium that requires you to pay additional proceeds towards the remaining properties in the loan. That can be particularly tricky in our current environment.
Quote from @Dulce Davis:
I hear that it's hard to find someone in Texas who will do blanket mortgages. Another lender who is also an investor, says its really not allowed in our area but she knows it happens. What are y'alls opinions on blanket mortgages?
I have 5 SFRs so far. Four mortgages have a balance around $90-100K, with values ranging $135-165. One property has no mortgage. I'm wondering if it would be an option in my situation to do a blanket loan for scaling. Or, just keep going as I am, doing delayed lending to cash out after I make repairs and get a tenant in them. Pros vs cons?
We assisted with many of these during low rate environments where the loan was planned as a very long term option. In todays market, they are most popular when purchasing a larger bundle, needing flexibility on a bundle (lower purchase prices being allowed for example), or when cross collateralizing equity as downpayment. - Lender · Member since 2022 · 441 posts · 134 votes2yHappy to help on the blanket! There are some pros & cons for sure:
Quote from @Dulce Davis:
I hear that it's hard to find someone in Texas who will do blanket mortgages. Another lender who is also an investor, says its really not allowed in our area but she knows it happens. What are y'alls opinions on blanket mortgages?
I have 5 SFRs so far. Four mortgages have a balance around $90-100K, with values ranging $135-165. One property has no mortgage. I'm wondering if it would be an option in my situation to do a blanket loan for scaling. Or, just keep going as I am, doing delayed lending to cash out after I make repairs and get a tenant in them. Pros vs cons?
Pros: 1 payment versus multiple easier to keep track of, some times higher LTV than individual loans.
cons: there is a “break fee” on most, if you want to sell 1 or refinance 1 property in specific you’ll have to pay this fee to rebalance the blanket loan, typically 1-2% of remaining balance. Rates can be a bit higher as well for the extra underwriting.
Doing delayed purchase is a good option but using majority of the cash to get the project done, which is fine if you’re doing 1 at a time. Makes it very hard to do multiple at a time, you could utilize a wide variety of loan options to scale faster but I wouldn’t recommend going max leverage on them. Fix n flip loans for purchase + reno.
bridge loans for purchase with no reno, do reno out of pocket.
cashout refinance of course upon completion & renting out, to move funds to the next deal. - Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes2y
I'm not a fan. Just this morning I was working on a modification of a blanket construction deal where the borrower is building 3 new construction single family homes. There was an issue with one of the three projects and it has been delayed a few months. We're solving the issue, but the blanket does complicate it. Just make sure you get a "Partial Release Clause" where the amount you have to pay down on the loan is prescribed up front when you sell a property in the blanket. That's the big issue I usually see with them. They are do-able, but individual deals are usually easier on the exit.
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