Thursday, 06 December 2018 00:00

Blanket Loan Pros and Cons

Blanket Loan Pros and ConsIf you’re an advanced real estate investor whose goal is to create a robust portfolio, it’s almost impossible that you haven’t heard of blanket mortgages before.

They’ve become one of the most popular forms of funding for serious investors with growing portfolios. Still, that doesn’t mean they’re always the right choice for everyone.

So, before you take out a blanket loan, it’s worth taking a few minutes to consider both the pros and the cons associated with this type of unique mortgage.

 

3 Pros of a Blanket Loan

As you probably know, a blanket loan is usually used by investors who want to purchase more than one property at once. However, that’s far from their only benefit.

1. Refinancing Purposes

A lot of real estate investors will reach the point where they run into a very enviable problem: they have such an impressive portfolio that it requires monitoring numerous loans.

When you first started buying properties, this may have seemed like a problem you’d never need to worry about. Nonetheless, enviable or not, it’s still a problem.

Fortunately, blanket loan refinance are availabe for these large holdings, turning multiple loans into just one. This gives you just one loan to keep an eye on and one single payment to make to one lender – much easier.

2. Reduced Overhead

One of the keys to a successful real-estate investment is considering all the costs involved. Obviously, mortgages represent a large percentage of the total overhead. This includes things like your application and loan origination fees. As you build your portfolio, those costs can really start to add up.

With a blanket loan, you only have one point of origination and one application fee. That’s it – even if you need loans for six different homes – you pay for the mortgage once.

3. Greater Leverage

Finally, perhaps the most overlooked benefit to taking out a blanket mortgage is how much more leverage you’ll have because of its size. In the world of real-estate investing, leverage is its own competitive edge, so this is definitely not an advantage that should be overlooked.

For example, a $300,000-blanket mortgage will help your future prospects of securing funding much more than having 3 separate $100,000 loans would. Therefore, by using blanket loans to buy more homes, you’ll actually have an easier time buying even more homes in the future. That’s a major benefit!

3 Cons of a Blanket Loan

Obviously, blanket loans have become extremely popular among real estate investors for good reason. Even so, before you begin going through the application process, let’s look at some possible drawbacks worth considering, too.

1. Higher Payments

Most real-estate investors aren’t intimidated by the higher payments associated with blanket mortgages. It means they can purchase more properties – immediately increasing their cashflow dramatically – higher loan payments aren’t much of an issue.

It’s still something worth thinking about, though. If you have other obligations pulling at your monthly revenue at the moment, it might be worth waiting or even opting for a smaller, traditional loan to purchase just a single property until you’re able to address these obligations.

2. Bigger Loans Come with the Potential for Bigger Defaults

If those larger payments become too much for you, the result could be a default. That’s never good news for a real estate investor, but the problem is much bigger when you use a blanket mortgage because of its size as a loan.

Default on one loan for one property and you may be faced to give it up. Default on a blanket mortgage and all of the holdings it covers are in jeopardy.

3. Possible Issues Selling Your Property

This is another drawback that some investors don’t worry about at all, but it’s still important you understand it.

Some investors who use blanket loans later have trouble selling their properties down the line. Specifically, if your terms aren’t designed for a partial release and include a due on sale clause, selling just one home could make the entire mortgage due.

Would a Blanket Loan Make Sense for You?

As you can see, there are some important factors to consider before deciding on a blanket loan for adding to your portfolio.

However, if you already own at least two properties, it will be hard to find a better option.

In that case, you can start with the blanket loan application process right now and take one step further toward purchasing those new properties. We’ll let you know if you’re approved ASAP and answer any specific questions you may have about this popular loan.

 

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