Loans Secured by Portfolio

[Ron Amshalom]

Hi everyone,
Is it possible to take out one loan secured by multiple properties, with better terms than getting 4–5 separate loans?
Specific for long term rentals.

Would love to hear from anyone with experience on this.
Thanks in advance!

[Clayton Silva]

Yes it is, I've personally done a number of these and have used one for my own investing. The terms are going to be a hair worse than individual DSCR loans (usually like 1/8th or 1/4 worse on the rate) but it also depends on leverage, type of rent (long term vs short term), purchase vs refi vs cash out, FICO and other factors. Couple things to note:

1) There is typically a pair off fee and/or waterfall effect when you sell off properties out of the portfolio.  Example, if you have 5 properties and each loan amount was 100k per property.  When you sold the first house it would often pay off 110 or 120k of the total loan amount even though the original loan was 100k.  Now the total loan amount went from 500k down to 380k which makes the loan per property on the remaining 4 properties 95k instead of 100k so you have more equity in the remaining properties.  This is to reduce risk and exposure for the bank, so as you sell more and more you have more equity in the last couple properties. There is also usually a one time fee to sell each property as well as any prepayment penalties incurred. 

2) Most of these loans operate like and underwrite like a DSCR loan. Rent has to exceed PITIA. While DSCR loans can go to parity with PITIA ($3,000/month in PITIA and $3,000/month in rent), a lot of portfolio/blanket loans require a 1.1 or a 1.25 DSCR ($2,400/month in PITIA and $3,000/month in rent). This also means most have a prepayment penalty ranging from 0-5 years and they vary widely between them. Certain states prohibit prepayment penalties altogether or have specific requirements so states like OH, MO, IL, and others are very difficult to get decent DSCR or blanket financing in for example because of their laws.

Hope this helps!