Many real estate investors see growing a portfolio of single family rentals as the best way to scale their business. But most investors who travel down this road soon come to the point where they need rental portfolio loans to continue growing their portfolio.
They move beyond what they can purchase with cash, or they want to leverage the equity in their portfolio to purchase more rental properties. This means using the equity in one house to pay the down payment for another house when finding loans to purchase a single family rental portfolio. This kind of rental property portfolio loan is sometimes called a cash-out refinance.
Prior to the creation of these rental portfolio loans, borrowers were challenged with finding multiple capital sources, undergoing excruciating underwriting requirements, providing personal guarantees, and were subject to logistical servicing headaches.
Allowing investors to cross collateralize their assets into a blanket portfolio loan opened the door to streamlined access to capital and eliminated many of the difficulties that came with trying to finance multiple assets separately. The advent of the single family residential portfolio loan has changed the real estate investing landscape and has created numerous benefits for residential investors.
At Apex Capital Solutions we specialize in these kinds of loans for rental property portfolios.
1. No Capital Limitations or Property Restrictions
Unlike traditional bank financing that may limit the number of assets or capital that can be provided to a single borrower, a rental portfolio loan does not come with the same limitations. There is usually no cap on the number of assets, loans and dollar amounts that a portfolio lender can lend to a single borrower.
Borrowers were once faced with the challenge of leveraging their assets at a pace set by their local lending institutions. With portfolio loan lenders, investors can leverage at their own pace and grow their portfolio exponentially.
“With portfolio loan lenders, investors can leverage at their own pace and grow their portfolio exponentially.”
They can do this with the added comfort of knowing that there is a relatively unlimited capital source at their disposal.
There is also no limitation on the number of individual properties that can be financed into a portfolio loan. A borrower can finance five of their rental properties or they can finance five hundred.
2. Asset-Based Lending
A rental portfolio loan is primarily asset-based. As such, the cash flowing characteristics of the properties included in a portfolio generally determine the loan amount and terms. Other types of lenders are usually more focused on the credit metrics of a borrower and often limit proceeds or terms based on personal credit, even when the collateral may be a high-yielding rental property in a strong market.
For an asset-based portfolio loan, high performing assets can be awarded a higher Loan To Value (LTV) and possibly a reduction in interest rate for assets located in strong markets. There is also a reduced headache during the underwriting process as a blanket portfolio loan usually only requires property specific documents to confirm cash flow, value and cost basis.
We do not require full documentation from a sponsor that a traditional bank or a more credit-focused lender would require.
At Apex, we offer a non-recourse feature for rental portfolio loans. Traditional banks and most hard money lenders will typically require their loans to be full recourse to the sponsor. Our portfolio loans allow the sponsor to bypass the personal guarantee. This is an added benefit for those sponsors who are seeking to keep their personal assets and businesses separate. Specialty lenders focused on rental portfolio loans are usually the only lending institutions that offer this added feature.
Non-recourse financing is often the preferred choice for many established real estate investors. In contrast, local banks will almost always require full recourse guarantees.
4. Benefits of Consolidation
With a portfolio loan, investors can roll up all of their rental assets into a single loan with one monthly payment and a single point of contact. Having one payment alleviates the added process and stress that can be associated with processing multiple invoices owed to various lending institutions every month. Investors may also be able to set up a direct deposit that takes care of their loan payment for all assets.
This can free up bandwidth and allow for greater operational excellence. Investors can also gain some additional cost benefits such as insurance.
In addition to cost and payment benefits, our investors often build lasting relationships with their single point of contact/portfolio managers, who work to provide them the most competitive quotes and help streamline their due diligence process. Compare this to multiple banker relationships for numerous loans.
Again, these are just some of the benefits of a rental portfolio loan. We know – because we have custom-tailored our products to ultimately benefit residential real estate investors and continue to find new ways to innovate.