Overall portfolio strength is more important than just including all your investment properties in a portfolio.”
could be a valuable resource doesn’t mean you have to rely on them for every deal.
ACQUIRING PROPERTIES VIA DELAYED PURCHASE INSTEAD OF REFINANCE In some scenarios, especially for fix-and-flips, borrowers will qualify for higher leverage with a delayed purchase than with a refinance if they have bought the property recently and can close the delayed purchase within 3-months of the purchase. Auction properties can benefit from this strategy. If you were to refinance, there are seasoning requirements that could initially prevent you from qualifying for a loan with a lender. Knowing how delayed purchases work and hav- ing a lender suggest that to you is a positive sign that they are looking to help. At RCN Capital, we try to point out whenever a client has the poten- tial to cash in on a delayed purchase. Investors can pull out the equity on their property almost immediate- ly and this a huge advantage when it comes to expanding a real estate investment portfolio. INCLUDING OR EXCLUDING PROPERTIES IN A PORTFOLIO LOAN The benefits of adding or exclud - ing properties in a portfolio loan are crucial to know for any investor. Ask as many questions as possi- ble to your lender about what their portfolio guidelines are and whether or not you should include certain properties. The benefits of applying for a portfolio include consolidat- ing the monthly payments down to a single payment, reducing the average legal fee cost across con- solidated properties, and occasional
reductions in the cost of appraisals. Portfolio loans can be a useful tool for many investors in their ability to reduce closing costs per property on average and provide borrowers with a large sum of liquidity in the case of cash-out refinances. Another major advantage that your lend- er should offer when it comes to portfolio loans is the same interest rate across the board for the entire portfolio. Instead of having different properties that could have vastly different interest rates, portfolios allow you to consolidate and improve your rate. All these advantages are enticing, but not every property is right for a portfolio. At RCN Capital specifically, we look at every property in a portfolio individually and ensure that it does not affect the overall performance of the portfolio. These underperform- ing properties can make a difference when it comes to rates and lever- ages certain lenders can offer. To obtain maximum leverage for a loan, it may be recommended to remove that certain property from the group even if the property does meet min- imum guidelines (for example, at RCN Capital properties with lower cash flow will still be required to meet a 1.1 Debt Service Coverage Ratio which may reduce LTV to the point that the property reaches 1.1). Properties that have less than that desired 1.1 DSCR may reduce entire LTV of portfolio to reach that 1.1 requirement. Overall portfolio strength is more important than just including all your investment prop- erties in a portfolio.
One exception that is worth noting for portfolio loans with RCN Capi- tal is the minimum property value requirement for long-term loans individually is $100k. The minimum for our portfolio program is $75k so long as the average property val- ue of the portfolio is over $100k. If you have a borrower with several properties that are rented long-term including a few that may be below the $100k threshold that RCN is typically looking for, this is an area where you can get a long-term loan for properties that are slightly below typical long-term loan require- ments as far as property value is concerned. Be sure to speak with your lender about any exceptions or workaround that can help you when discussing a portfolio loan. The list of workarounds and exceptions does not stop there. Always be sure to have an open conversation with your lender about what options are out there to make a specific deal work. The team at RCN Capital is always there to answer any questions you may have. Be sure to check back next month for part 2 of workarounds and exceptions that could help make your next deal possible! •
Nate Zielinski, Junior Business Development Coordinator, joined RCN Capital in 2020. He adds his ambition, communication skills, teamwork, and public speaking ability to RCN’s
Business Development team. Nate’s goal will be to recruit new, long-lasting business relationships with brokers and borrowers as well as maintain the strong relationships RCN Capital already has in place. Nate’s prior work experience includes sales, advertisement, copywriting, and social media. Nate graduated from the University of Connecticut in 2015 with a Journalism degree.
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