I'm looking for BP's ideas and thoughts about the pros/cons of financing multiple properties under one commercial loan.
I hold one investment property in an LLC and I focus on sub $100k town homes so up until this point I have been able to purchase for cash. I have an opportunity to buy a few more units via short sale using either my own funds and/or hard money. I have always planned on getting a loan on the properties to increase return and free up capital and would rather get one loan as opposed to multiple. I have reached to some banker and they've told me to call them when I have the properties.
For the bankers out there: how common is it to make these loans and what requirements do you usually have? Is it a min loan amount or min property number? Also, how is the sale of one property handled?
For the borrowers: would you recommend doing a loan this way? Why or why not? If so, what do you wish you knew/did differently?
Any ideas or thoughts are appreciated!
@Bill F. while this loan type does exist I wish people wouldn't talk about it as if it's a readily available product for everyone to use. The "blanket" loan type was designed to package multiple homes together and sell the entire package to investment firms. So if you are buying a package of 200 homes for your REIT, then keep the financing in place with a blanket loan to easily buy and sell the portfolio. Don't get me wrong, these loans can be used by other people but there are some pretty important items:
1. Most of these blanket loans start at a $1,000,000 minimum total property value. Meaning your entire package will need to be work $1million. You might be able to find a very small, community bank type of bank that might lend you a miniature-blanket loan to you but these banks are hard to find...and they will probably want a track record of lending to you first to feel comfortable with a different loan type. That means that all of your loans will carry a "portfolio" rate (higher rate or variable rate). If you do find a bank like this make sure and keep their contact information handy. They are great banks for non-conventional loan properties.
2. You cannot break up the package. If you sell one property, you will have to refinance every property over again...and pay all the costs again of refinancing. If you have this product make sure you have a long term approach with a proper exit strategy.
3. Costs - there are a few costs that you will save money on but for the most part the costs of doing the loan are the same. Each property will need to be appraised. Title insurance is a percentage of the loan on every deal...so title insurance fees are the same as if they were separate.
The best rates and terms on investment properties are with conventional loans. On your first 10 I think most would suggest for you to try to qualify for those loan types and then branch into other loan types. If you have more questions on this then feel free to ask. Thanks!
With the Internet and BP, everything's widely and readily available :-)
I purchased 4 properties out of state for $330k and got a blanket loan on it. It did take me a while to find a lender who would do it, mostly because I had 3 residential properties and one commercial mixed in there.
Andrew is right in that when you blanket something, you probably don't want to split it up. However, some lenders will let you split it up under something called an acceleration clause. In my case, the payoff of a single property was 120% of the loan balance.
Every property is underwritten separately, but putting it under a blanket loan saves you a little bit of money - mostly closing costs, but sometimes lender fees as well (i.e. one application fee vs multiple), although you might be able to negotiate this anyway if you're closing 4 loans with them at the same time (as opposed to 1 loan).
There are a few lenders who can do 3 to 5 properties as one loan as long they in the same state. The min value should be around $60,000. Your credit score would have to be min 660. I might be missing something else but can't remember off top right now.
Thanks for taking the time to answer, I appreciate you guys taking the time to school me up on how Blanket loans work. I didn't know that those loans were uncommon or even called blanket loans. With what you've told me I'm going to have to make some adjustments to my plans.
@Doran Summers Do you happen to know who those lenders are that will make the loans?
@Andrew Postell That's a great down and dirty on the loans. What made me think of using a blanket was that since my properties are under $100k, not a lot of commercial bankers are interested in making loans on them. I know I could get residental loans, but for a few reasons that's not an avenue I want to use. If get individual loans on 3-4 properties at the same time could that help my case?
@Bill F. i do but I would have to email them to you if that's ok. Don't want to break any rules on here.
I asked about this before and the very first lender said no problem
It was on only 4 properties in FL with total value of less than 500k
Maybe things are different in TX
@Michael Plante . What were that value of each property? I just refinance 7 properties in Texas which of course had more value.
I've done a few package loans. Not complicated. Take 3,4,5+ properties to a lender let them have a roughly 30% position and done. I've sold one inside a package with the worse case being that the lender required i give them the proceeds to pay down the loan. Only because time was short and to reappraise the rest of the properties to see if the ratios held would have caused problems with closing on time ( They were not being altruistic. The pay down increased their position to at least 40% with the remaining properties.) I've since then paid off that loan and will be shopping the properties for new money when the time comes.
Caveat: long term relationship with a local lender or two in your area makes it so much easier. My preferred local lender last 20 years was bought out and new owners are not local and to big to really give good customer service for small RE investors. I saw this coming a couple of years ago so I started increasing my business with a small local lender and will start building a relationship with another one in 2018. There's something about being able to walk into a branch and 3/4 people say hi using my first name. Beautiful (spirit), sharp (smart banker) woman that did a cash out for me recently would start/end our meetings with a hug! And of course bringing them good solid ( for banks that means safe) business helps.
Originally posted by @Doran Summers :
@Michael Plante. What were that value of each property? I just refinance 7 properties in Texas which of course had more value.
Total was approx 500k
@Michael Plante What is your credit score? I don't see why it was so difficult to get it refi as a portfolio. We're all of them sfh? We're the value of each property at least $60,000?
@Bill F. lots of good comments with this post. You see a pretty common point in most of these "i have a local lender that was able to do X". And that's they real key to do what you are trying to accomplish. Based on where your properties are located I would call all the smaller banks in your area to find out what they can do. Or maybe hit up some investment networking groups in your area to see what lenders other investors use in your area.
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