Posted by Brian on October 29, 2007 at 13:47:24:
Jim:
I have a bunch of residential properties in East TX, and I’m trying to get a blanket on about 33 of them. I’d love to speak to you about this. Please shoot me an email at b.royston@comcast.net Thanks,
B
Combining rentals into single mortgage - Posted by Tim
Posted by Tim on August 26, 2007 at 19:04:44:
I’ve got a duplex and a 4-plex that I intend to hold long-term. The combined LTV would be around 70% for the two properties. I’ve got 10 mortgages now, and it’s getting harder to get financed for new properties.
I heard that multiple properties can be combined into one mortgage, which can help reduce the number of mortgages a person has. Can somebody explain what in involved in doing what I want to do? Thanks.
Re: Combining rentals into single mortgage - Posted by Jim Culler
Posted by Jim Culler on August 27, 2007 at 10:41:31:
The biggest problem with the blanket loan is partial release.
If your strategy is to hold these properties forever, and perhaps will them to your family or something, then I would go for it.
But without the partial release option, you will have trouble selling, because you would literally have to sell the whole portfolio at the same time.
However, if you plan on holding them for a long time, or perhaps forever then there are many benefits to this type of loan.
At the end of the day, it really depends on your exit strategy.
Practical but Imperfect Arrangement - Posted by Jimmy
Posted by Jimmy on August 27, 2007 at 07:11:46:
I have several blanket loans (aka cross-collateralized commercial loans). In some ways they are great. in other ways not so great. almost any bank will do them. talk to the business bankers, and stay away from the home mortgage guys.
like hml’s, the bank first looks at YOU, and then looks at the properties. have excellent financials and high scores.
forget about 30 year ams. 15 is the norm. you might sweet-talk yourself into a 20. expect a balloon in 5-8 years.
most terms are negotiable. he bank sets its own underwriting and lending guidelines, and is not constrained by FNMA or FMAC rules.
my current deal is this, for loans under 250K: 7.05%. 6 yr balloon, 15 yr am, no points. no PPP. no appraisal (if assessed values work for me). no title policy (atty review works and is cheaper)
the 1st loan I got from this lender was a b!tch. they crawled up my rear-end with a microscope. after more than 10 such loans, the process is much easier and quicker. as the banker gains comfort with you and your biz, you will start rolling the ball downhill.
partial release problem. have this conversation BEFORE you do the loan. create some clear expectations about what happens if and when you want to remove a single property from the blanket loan. I did not think about this the first time, because I don’t usually sell properties. But I had one burn. here’s what you want: if property #3 represented 20% of the value of the properties under the loan, you want to be able to emancipate this property from the blanket loan by paying down 20% of the balance on the blanket. the bank will not be obligated to do this, so work it out in advance.
re-amortization problem. let’s say you have 5 properties worth $1,000,000 securing an $800,000 blanket loan. and a loan payment of $7900 a month. and you sell property #4 which was worth $550,000 when you did the loan (obviously, the most valuable property n the portfolio). so you pay down 55% of the principal balance of the loan. so far, so good. but now, you have a lot less rent to support the same $7900 loan payment (you just sold off 55% of the portfolio). ouch. your 15 year am just turned into a 6 yr am. if the remaining properties are cash-flow rich enough to cover the $7900 payment, great. but its likely they will not be able to do this. have this conversation in advance. get an agreement that allows the loan to be re-amortized (over the remaining life of the loan) when you pay down 30% or 40% of the balance.
Exaggeration of Problem - Posted by Jimmy
Posted by Jimmy on August 27, 2007 at 11:18:30:
“sell the entire portfolio”
please !!
just work out the arrangement before you do the loan. have the conversation before you do the deal. bankers are reasonable people, generally speaking. I have never had a problem getting partial releases, and I have done it 7 or 8 times. twice because of involuntary conversions (insurance proceeds after fires) and the rest when I sold.
with that said…if the borrower’s financial condition has worsened materially, the bank may (properly) (a) refuse to grant the partial release, or (b)condition the partial release on a disproportionate paydown of principal.
the partial release, like the mid-stream re-amortization, is within the discretion of the banker. Maintain a good relationship and strong financials, and your banker will bend over backwards to help out.
Re: Exaggeration of Problem - Posted by jim
Posted by jim on August 27, 2007 at 11:22:45:
If you dont deal with it up front, and partial releases are not allowed, you would have to sell the portfolio in order to sell at all.
If you have a bank allowing partial release on multiple SFR’s or 1-4 unit property, I would love to know the name of that bank.
Re: Exaggeration of Problem - Posted by Jimmy
Posted by Jimmy on August 27, 2007 at 12:29:19:
I am speaking from experience.
From what standpoint do you speak? theoretical?
partial release banks with whom I have dealt: Capital One Bank. Tyler TX branch. Citizens First Bank, Tyler, TX branch. Wells Fargo, Austin (Westlake) branch.
“partial releases not allowed”
who says? anything is allowed with commercial loans. its entirely within the discretion of the banker. I have never been refused when I’ve shown up with the proportionate amount of cash. and my clients (law practice) had no problems either. except one time. and that one time involved a client who had sharks circling around him, and he ultimately went belly up. in that situation, the bank WAS RIGHT not to grant the partial release.
in any event, if you get a blanket, have an understanding in advance. its EASY to have this conversation. just do it.