This article defines a real estate portfolio, notes some portfolio lending resources, and discusses when using such resources might be a good or bad idea.
This month I closed on my first investment property. I will actually be receiving a check, rather than paying closing costs, at closing. See more here.
I will now be the owner of two properties, so obtaining a portfolio loan is a serious consideration. A real estate portfolio is a collection of one or more real estate properties, so a portfolio loan can technically be issues even on a single property. While technically one or more properties constitutes a portfolio, lenders vary widely in the specific portfolio lending options they offer. It’s common to see a minimum property number of 3 or 5, or a minimum property value of $500,000 (2018).
Standard LTV on a portfolio loan is 75%, but some specialty lenders can go for 80%+. Just ask.
Here are some specific portfolio loan options:
- $250k minimum portfolio value
- Minimum 1 unit
- Also check out their Portfolio Growth Program
- Lima One Capital
- $50k minimum portfolio value
- Minimum 1 unit
- $500k minimum portfolio value
- Purchase or refinance
- $75k – $2M portfolio value
- 30 year fixed with significantly below market average interest (currently anyway)
So while one or two lenders may exist for almost any portfolio composition, many portfolio lenders begin to overlap with 5 or more properties and more than $1M in portfolio value. Obviously, competition drives marginally better terms for the consumer.
Portfolio loans come in different flavors. Here are some different loan types and situations in which you might want to use each type:
- Portfolio purchase
- Use when buying a portfolio
- Use when you want to leverage equity in a portfolio toward the purchase of an additional property
- Cash out refinance
- Use when you want to extract equity from a portfolio for any purpose
- Ordinary refinance
- Use when you want to consolidate multiple property payments into a single payment, reduce monthly payment, or reduce the rate on a loan
- Interest only
- Use when you want to minimize monthly payments
When does a portfolio loan not makes sense? Here are some cases:
- One or more properties are cash-flow negative or you would be better off just selling
- The portfolio loan would result in a higher average interest rate across properties or would increase monthly payments
- Portfolio default can result in all properties being foreclosed
- Individual properties within a portfolio may be harder to sell, finance, insure, or contract in a special way
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