Do you only need a portfolio lender after the first 4 conventional loans? Is there any benefit of going with a portfolio lender before the first 4 loans?
@Jonathan Wyse The benefit comes in the fact that your lender isn't bound by the same rules tied to conventional loans. Keep in mind that the reason lenders are so stringent on their conventional loan requirements is because they're meeting certain criteria needed to, potentially, sell your loan on the secondary market. In other words, if loan doesn't look a certain way then your lender can't resell it. In the case of a portfolio loan, the lender doesn't care about that. They'll structure your loan in a way that makes sense to them because they're planning on actually keeping/ servicing your loan. So yeah, like @Jeremy Pace said; it depends :)
I would find conventional lenders up to 10 properties before you worry about other types of lending. Keep calling around and finding out which bank has which programs. Some local banks will also allow for conventional lending over 10 properties. I found one in Utah.
@Jonathan Wyse You can get up to 10 conventional loans. With conventional loans you can get a 30 yr fixed loan and rates are low.
The benefit of portfolio (i.e. commercial) loan is that you would be able to get the title in LLC. But for that benefit you will have to settle for a 5-7 yr balloon loan.
The reality is that most conventional lenders will not allow you to go up to the 10 loan ceiling. They have their own overlays that limit you to protect themselves. With a portfolio lender you have the ability to close in more than just your name, avoid it reporting on your credit report in most cases, and have access to more types of deals (commercial). They do tend to have shorter terms, although some of the lenders I deal with will go to 20 year terms with 25-30 year amortizations. Remember on a commercial deal, the property becomes the most important part - the borrower must be sound, but not to the same extent as with a residential lender.
Thank you for the mention @Jeremy Pace
You can go up to 10 properties with conventional financing. You will get the lowest rates with a 30 year fixed as mentioned above. You will be required to meet certain criteria as others have stated, but to me it is worth the savings with long term financing. If you exceed the limits of conventional financing portfolio is the best route to go.
A major benefit to using a portfolio lender over conventional financing is the value seasoning restrictions are different. With conventional financing, you would normally have to wait 12 months to refinance cash out up to 75% of fair market value. With portfolio lending, there are usual none or very little value seasoning restrictions, therefore you may be able to refinance up to 75% of fair market value right after rehab is complete and tenant placed, and cash out your original down payment funds to recycle into the next project.