Guest Article By Nate Zielinski, Business Development Coordinator, RCN Capital
One aspect of real estate investing that is crucial for success is knowing all the financing options that are available to an investor. Fix and flips and long-term rentals seem to always dominate the conversation, but lenders can offer much more as well. Two of the most underrated but effective loan products that lenders offer are the multifamily loan as well as the portfolio loan.
These are enticing for a lender because of the property values that coincide with these types of loans. You are more likely to see the lender work for you and work with you to try and get these deals done. As an investor, it is important to know all your options, and there are also key factors worth noting that come along with these loan programs. Here is a breakdown of the benefits and what to look for when searching for a multifamily or portfolio loan.
This is key for both multifamily and portfolio loans, but the first thing you want to do is look for competitive rates and leverages. It is a must that investors shop around, ask for rough drafts of term sheets or a quote for a potential loan with that specific lender. It’s also important to seek out lenders that are actively willing to adjust their rates and leverages based on the specific scenario. This will let you know that a lender is serious about providing the best options for their clients and want to help them. Lenders with short and long-term multifamily options are also a plus. Multiple options to fit exactly what you need is a sign that you are working with the right lender.
Another enticing aspect of why you’d want to look for a multifamily property and secure a loan is the passive income that you can receive. Rather than renting out one unit in a single-family residence, you can rent out multiple units in a multifamily property and generate passive income at a much faster rate. Finding the right multifamily property in the right market is key, but the cash flow from a multifamily property can provide you with so many options and allow you to make other investments. Multifamily properties are more work, there is no doubt about that, but looking into hiring a property manager is a way to alleviate some of that stress and will allow you to invest your time and money into other properties.
Tax benefits are another crucial part of why investors should be looking for multifamily properties. Some of the expenses that come with owning a multifamily property that you will be able to write off include the following: insurance premiums, management costs, maintenance and repair expenses, marketing costs, utilities offered in each of the units, and the interest on your mortgage. All these subtle and obvious ways to recoup some of your money when it's tax season are very attractive to savvy real estate investors.
A portfolio loan is another loan product that investors should seek out in real estate investing. Whether it is purchasing a great cash-flowing portfolio or seeking a cash-out refinance for a portfolio you already own, a strong portfolio can always be beneficial.
Portfolios also make a usually hectic profession much more organized and efficient. Not only do portfolio loans conveniently provide a one-stop service for managing numerous properties, but they also have the potential to reduce costs. If you have a number of properties that fit into portfolio guidelines coupled with the experience to be able to manage those properties long term then the portfolio loan is right for you.
Another additional benefit to using portfolio loans is the ability to combine multiple properties that might not ordinarily qualify with a lender into one loan. For example, RCN Capital typically requires all 30-years loans to have properties with a minimum as-is value of $100,000, but for properties in a portfolio, we move that number down to $75,000 if the average of all the properties is still above the $100,000 thresh hold. For example:
- Property 1 As-Is Value: $77,000
- Property 2 As-Is Value: $89,000
- Property 3 As-Is Value: $145,000
- Property 4 As-Is Value: $160,000
- Overall Portfolio Average: $117,750
With this structure, you can have properties that would normally get denied by lenders, approved instead! Additional advantages of portfolio loans include consolidating monthly payments, saving on legal fees, acquiring lower interest rates relative to other existing rates, and possible savings on property appraisals. There is an abundance of advantages for working towards a portfolio loan and eventually getting a deal funded by a lender.
Whether you decide to seek a multifamily or portfolio loan, there are benefits to expanding your real estate investment experience beyond just the industry standard of a fix and flip or a long-term rental. There is no doubt that every loan product has its pros and cons, but it is good to know that these options are out there, and they can increase your cash flow and efficiency on a day-to-day basis. Reach out to RCN Capital with any additional questions regarding these products and see if there is a potentially lucrative opportunity by working with us and getting your next deal funded!
Unitas develops a custom-tailored program of insurance that meets or exceeds the goals of the client while satisfying the requirements of the lender or other 3rd party interest. In other words… “The most comprehensive program of insurance at the best possible cost.” Reach out if you would like to talk to our Investor Risk Management Guru, John Watt, about your portfolio.