The Ins and Outs of Blanket Loans for Multiple Properties

As a real estate investor looking to purchase multiple properties blanket loans can make financing simpler and more cost effective. But what exactly are blanket loans and are they the right choice for your investment portfolio? As an active real estate investor myself I want to provide a detailed look at blanket loans, who they work for, and tips for obtaining one.

What is a Blanket Loan?

A blanket loan, also called a blanket mortgage, is a single mortgage loan used to finance the purchase of multiple investment properties at once Instead of having to qualify and close on separate mortgages for each individual property, you can place them all under one blanket loan

The multiple properties then collectively act as collateral for the blanket mortgage. This streamlines things both for the borrower and lender.

Blanket loans are frequently used by:

• Real estate investors
• House flippers
• Landlords
• Builders
• Developers
• Businesses opening multiple locations

They allow you to simplify purchasing, make a single monthly payment, and have one interest rate across the bundled properties.

Benefits of Using a Blanket Loan

As a real estate investor myself, I’ve found blanket loans to offer several key advantages:

Lower Closing Costs

With a traditional mortgage, you pay closing costs and fees each time you purchase a property. This can really add up if you’re buying multiple investment properties.

Blanket loans let you avoid many of these per-loan costs by wrapping multiple purchases into one loan. While the total closing costs are still higher than a single mortgage, it’s lower than buying each individually.

Simplified Administration

Handling the mortgage administration for each separate property can be tedious. There are so many details to track – interest rates, monthly payments, escrow accounts, and paperwork.

A blanket loan makes this easier by centralizing it under one loan, payment, and interest rate. I find this much simpler than managing the details across many separate mortgages.

More Cash Flow

Since you save money upfront on closing costs with a blanket loan, you can take those savings and reinvest them into your real estate business. This extra capital can allow you to acquire additional properties or fund renovations to add value.

As a real estate investor, I’m always looking for opportunities to maximize my cash flow. The savings from a blanket loan help make this possible.

Loan Continuity

If one of the properties under the blanket loan is sold, you do not have to pay off the entire mortgage. The loan continues for the remaining properties, just with the sold property removed.

This continuity means you can freely sell individual properties without disrupting your overall financing. The flexibility helps as you aim to build and expand your investment portfolio over time.

Drawbacks to Consider

While blanket loans have many positives, you need to weigh some potential drawbacks as well:

Higher Down Payment

Lenders often require a down payment of up to 50% for a blanket loan. This is much higher than the typical 20% down payment needed for a conventional mortgage.

As a real estate investor, you need sufficient capital upfront to meet this higher requirement. Make sure you have adequate funds or can bring on an investment partner.

Balloon Payments

Some blanket loans involve balloon payments. This means you make lower payments for a set period, followed by one large lump-sum payment of the remaining principal.

Balloon payments allow initial cash flow flexibility. But you must plan ahead to have cash reserves available later to cover the full balloon payment when due.

Foreclosure Risks

Defaulting on a blanket loan puts all the bundled properties at risk of foreclosure together. With multiple properties as combined collateral, a default can impact your entire real estate portfolio.

This risk makes consistent payments crucial. Work to protect yourself by only taking on what you can comfortably afford.

Availability Challenges

Most traditional banks and credit unions do not offer blanket loans. They tend to come from specialized commercial lenders. This smaller pool of providers can make access more difficult.

You need to research lenders thoroughly to find those providing blanket loans. Be prepared for a more rigorous application process too.

Ideal Users for Blanket Loans

Now that we’ve looked at both the pros and cons, who should consider using blanket loans for their real estate purchases?

Real Estate Investors

For seasoned real estate investors like myself, blanket loans can be ideal. Investors buying multiple properties benefit from the lower costs and consolidated management blanket loans permit.

But new investors just getting started should be cautious. It may be better to begin with traditional mortgages on your first few purchases. Once you build up experience, blanket loans can then work well for your growing portfolio.

House Flippers

An investor who buys homes to renovate and quickly resell can gain similar advantages from a blanket loan. It allows efficiently financing multiple flips at once.

Just be sure to only take on what you can afford. Defaulting during the short flip timeframe could endanger all your project properties.

Landlords

Landlords often finance multiple rental properties. The centralized payments and lower costs of a blanket loan simplify owning numerous rentals.

A blanket loan also avoids having to disrupt the financing of your entire rental portfolio if you sell off one individual property. This flexibility helps landlords actively manage their rental assets.

Builders and Developers

Builders and developers taking on multiple projects benefit too. The ability to purchase or refinance land, construct model homes, and finance ongoing projects can be streamlined under one blanket loan’s umbrella.

Getting Started with a Blanket Loan

If a blanket loan aligns with your real estate investment strategy, here are some tips as you get started:

Find the Right Lender

Thoroughly research lenders offering blanket loans. While availability is lower, you can still find options by focusing your search.

Mortgage brokers familiar with commercial lending can help connect you with blanket loan providers too.

Understand Qualification Factors

Blanket loan requirements are often higher than conventional mortgages. Be ready for factors like higher credit scores, lower debt-to-income ratios, larger down payments, and strong cash reserves.

I recommend speaking with a potential lender to understand their specific underwriting criteria before submitting a full application.

Compare Options Extensively

Do not go with the first blanket loan offer you receive. Thoroughly compare multiple lenders for the best rates and terms. Consider factors like fees, rate, amortization period, and prepayment penalties.

A mortgage broker can again assist by shopping your scenario across numerous lenders to find deals.

Involve Partners if Needed

If you lack the full down payment or do not meet the stringent property restrictions solo, consider enlisting investment partners. Their added capital and credit strength can help qualify and fund a blanket loan together.

Just be sure to consult an attorney experienced with real estate partnerships to formalize the agreement.

Wrapping Up Blanket Loans

As you expand your real estate investments, blanket loans can provide an efficient financing vehicle. But they are not right for everyone. Consider your specific scenario, portfolio goals, and finances to determine if a blanket loan aligns with your strategy.

For seasoned investors like myself, utilizing them to maximize returns and simplify ownership of multiple properties makes good sense. But for new investors, beginning with traditional mortgages while you build experience may be better.

Either way, always work with trusted professionals like attorneys, accountants, mortgage brokers, and lenders as you use financing to grow your investments successfully over the long term.