Hello, I'm just starting out in real estate investing. I have plans to acquire 30 properties in the next 5 years. I'm looking to find a good way to finance the deals once the cash runs out. How do Portfolio Loans work and would it be a good option for someone who is just starting out? I'm interested in taking a loan through my LLC.
Portfolio loans are great, I just started my investing journey about a year ago and am dealing with a portfolio lender for a property that is held under my LLC right now. My advice would be to buy as many properties through the LLC as you can with cash, and then go back to the portfolio lenders after you have tenants in place with signed lease agreements and do cash-out refinances.
The terms of a commercial loan won't be as favorable as traditional financing. Interest rates will be a little higher, and the amortization schedule will likely be 20-25 years, with a balloon repayment by or before year 10. But you'll get to establish a relationship with a local bank (or several) and potentially open the door to obtaining a business line of credit down the road once you have built up trust with the lender. Also, the paperwork required for commercial loans through a portfolio lender (at least in my experience) is much less than going through one of the big banks, since they keep everything in house.
Basically the same as conventional loans....ltv‘s of 75/80%, similar DTI’s, etc., if you can gat get 30 year loans.
Using an llc eliminates your ability to get up to 10 conventional 30 year loans.
I’d start with the conventional it a superior product. Once you exhaust those do portfolio
I agree with @Caleb Heimsoth . Go the conventional route early on until that option is closed. The terms are so much better. Although, establishing relationships with smaller, regional banks is crucial down the line, the experience you'll gain thru the conventional route should be quite enough at the point to "prove" your worthiness.
Alejandra, I’m glad you asked this question. I was looking into this myself. Just closed on 3rd property this year and wanted more information about portfolio loans.
Thank you, Michael, Wayne and Caleb for your thoughts on this subject. Will look more closely at conventional loans. I purchased others cash.
@Caleb Heimsoth how easy is it to "switch" later ? I've heard it's better to do 10 conventional 30 year loans held under my own name (as @Wayne Brooks says, you cannot use an LLC for a conventional loan).
So what happens when you exhaust your 10 loans ? Can you move all of this real estate into an LLC later on and "restructure" when you own it free and clear ?
Thanks for the information everyone!
Hey, kinda late to the thread on here.. but wondering if you used portfolio loans to start or stayed with conventional? I would like to use the 10 conventional loans myself but at that rate I could only do 2 deals a year when you take into account the seasoning period when using the brrr method. I kinda want to just switch to portfolio..
Hey @Ryan Keenan I ended up going with the conventional loan and really the pace of 2 investment properties per year has worked out well for us.
Thanks for your response! Does your bank allow you to refinance under 6 months? For me I'm just waiting for the refiance in december to do it again but it's not fun waiting on the sideline lol