When getting a portfolio loan, do the banks loan you the money just for the down payment on the house? or do they loan you the money to buy the property? or do they give you the money for the property and the rehabs?
Portfolio lenders are simply lenders who make loans out of their own "portfolio" which means that they do not sell the loan to a big bank (Wells Fargo, BoA, etc.) They keep these loans on their own books - most likely this is a local bank.
They typically loan you 70-80% of the value of the property. If you're looking at $100,000 property, you will put up $20,000 and they will put up $80,000. You need to come up with the money for the down payment. They may sometimes loan you the money on a rehab but it's not likely if you're dealing with a bank. It's really going to come down to their policies and appetite for risk.
@james. If they are doing 20% down on property, how is that any different from a big bank conventional loan? Besides them being in house. And how would I get money for a rehab if it's not rolled in the mortgage loan?
@Marquell Jones the difference is the terms. You won't find really low (comparatively) interest rates. You'll likely not find loans with a 30-year amortization. You will also probably have a balloon at 5-7 years.
The bonus is that you can use this to own properties in an entity, which can add protection. It is easier if you have multiple people in a deal to set it up in an entity. It also does not show up on your personal credit meaning you still have access to all of your traditional Freddie/Fannie loans.
Banks aren't typically going to give you money for a rehab. Banks hate risk. Some random person off the street claiming they can rehab a house for XXX profit is risky. They will typically not loan for rehab. Look into FHA 203K loans for that, but otherwise there isn't much out there from a standard bank/credit union. This is where hard/private money or a LOC come into play. That is the niche they fill.
@Bryan O. , I am exploring my first income property, focusing on 2-4 unit complexes. I have a partner and we plan on setting up a LLC. When you say "entity", would a LLC fall into this category?
Another question, if a conventional loan is based on personal income, debt-to-income, etc, how does one go about scaling into dozens or hundreds of properties?
Thank you in advance,
@Justin Ratzlaff yes, an LLC is a business entity. You scale by using more than conventional loans. Use commercial loans. You can search the site for portfolio loans, blanket loans, and commercial loans. You will find those terms used (almost) interchangeably.
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