How does financing work on residential portfolios? I'm looking at a portfolio of houses (9) in the Central Valley, but I'm wondering how financing for a portfolio of SFRs works. Is it a series of residential loans or one blanket mortgage or is it a commercial loan?
Also, how much would I expect to need to put down?
Probably 20-25% down, and you would want to look at a commercial loan to get started. It would be difficult to get that many separate residential loans all at once.
I own ten properties at the moment. Five of them I purchased and renovated with a partner's money and then quickly refinanced them individually into commercial loans at 5%, amortized over 20 years with a 5-year balloon. I am now beginning the search to find a portfolio lender that would refinance all five into one loan with a longer amortization and longer balloon.
A friend of mine recently got a "cross-collateralized" commercial loan at a regional bank on four properties. They went 50% LTV, 30-year amortization and and 20-year balloon at 4.25%. I would love to find the same, but I'm wondering if those types of terms are common in commercial/ portfolio loans or if it is common?
Commercial blanket loans against multiple residential properties are fairly common. I have 10+ wholesale lenders that do these loans regularly.
The rate and terms are very dependent on property values, locations, LTV and borrowers strength. Generally speaking you'll likely see rates in the 5-7 range. Terms vary widely. Most will cap out at at 70% LTV. Commercial Hard money could be another option if you getting a great deal. Once tenants are in and rehab (if needed) is complete you can refi to a more palletable rate.
I would start with whatever institutions (banks, credit unions, etc) that you currently have accounts with. Because of the relationship, you may either get a loan from them or get a good local referral. Lenders local to the properties will typically be a little more flexible and affordable. If not or if you want a 2nd quote, feel free to reach out to me.
@Peter K. what is a wholesale lender ?
Thank you in advance
Hello @Jenkins Ramon Good question. Wholesale lenders or standard lenders with a wholesale department typically give discounted rates through Mortgage Brokers since we are bringing the client and handling the loan processing for them.
It is why often times why a good mortgage broker can be very competitive to direct lending quotes (often times even more attractive) and make the client's life easier by being able to shop many sources for them and have multiple back up sources, should the loan get rejected by the lender's underwriting dept.
Because we already have a complete loan package put together, you often won't have to start from scratch with each lender...filling out multiple applications, resending finacials, taxes, etc.
Having said all of the above its still a good idea to get at least one quote from a direct source to compare. Especially if you have a banking relationship with that source. Some institutions will be quite competitive and a little more flexible to their existing clients.
Thank You @Peter K.
@Peter K. do you know what the maximum number of units you can have in a property before residential financing is no longer valid and commercial loans must be used?