When Do Blanket Loans Make Sense for Real Estate Investors?
As with any investment market, real estate can be somewhat unpredictable. If you’re leveraging your investments, then it’s important to understand the financial instruments that you’re using and how best to take advantage of them to maximize your return on investment. In this post, we’re going to talk about blanket loans, what they are, and specific scenarios in which blanket loans make sense as a financial instrument for long-term investing success.
What is a Blanket Loan?
Private lenders love to come up with fun names for their products. The term “blanket loan” gets its name from the idea of a blanket covering a large area. In this case, it’s one loan that covers multiple investment properties, often on a long-term basis. For example, if you own 5 properties and you want to refinance all of them at once under one single long-term rental loan, you could take out a blanket loan.
Use Cases for Blanket Loans
Simply put, blanket loans work best for real estate investors and landlords who own multiple properties and do not plan on selling any one of those properties at any point in the near future. They work best for established investors who are seeking to simplify their finances and maximize cash flow from their investment properties. Let’s say you’ve purchased and rehabbed ten homes over the last two years, and you know that you want to hold onto 5 of them in the long term. If you’re paying 5 separate mortgages for each of those properties, it often makes sense to bundle them together into one low-rate mortgage so you only have one monthly payment to make, which in many cases is lower than it would be for 5 separate loans.
Blanket loans make even more sense when interest rates are at low points, as you’ll be locking in that low rate over an extended period of time, increasing your future cash flow and maximizing your return on your investment.
Special Considerations and Possible Downsides
While blanket loans may make sense for some investors, it is important to be thinking long-term when deciding whether or not you would like to finance your properties under one. When one loan is covering multiple properties, it’s important to note that you’ll likely be unable to unbundle the properties and sell them individually until one of the properties is worth more than the outstanding principle on the loan.
In addition, if something were to go south and you were to default on a blanket loan, you would stand to lose multiple properties rather than simply losing one piece of a larger portfolio. With that in mind, it’s important to know that you’ll be able to pay off a blanket loan without issue before entering into an agreement.
How Do I Know if a Blanket Loan is Right for Me?
Due to higher scrutiny on blanket loans (since the amount of the loans are often high), it can sometimes be difficult to know if your properties will even qualify. Speaking with a loan originator to see actual terms and be able to ask questions to ensure that you completely understand what you’d be entering into is really the best way to do your research and determine whether or not you’re comfortable refinancing multiple properties under one loan.
At Pimlico Capital, we pride ourselves on not only offering blanket loans, but also in keeping our clients’ best interests in mind when discussing loan terms. If you’re seeking a blanket loan for your real estate portfolio, get a quote or give us a call at 410-855-4600 to get started today!