A blanket loan is a mortgage used to finance more than one property. It can be utilized when investing in rental properties. If you’re a landlord, this type of loan can provide several distinct benefits so it’s definitely worth your consideration.
1. Lack of a ‘Due on Sale’ Clause
One of the most attractive features of a blanket loan is the lack of a ‘due on sale’ clause. Here, you can sell one or more properties on which your loan is secured without needing to completely refinance. You will be required to pay back the mortgage amount represented by the property you sold, which is often at 65% to 70% of original appraised value determined by the lender when you took out the loan.
2. Provides Administrative Gains
A blanket loan requires less paperwork than multiple traditional loans. So, if you own five rental properties, instead of making five mortgage payments each month, you would only make one.
This equates to filing fewer statements and meeting fewer obligations. Having a blanket loan would also cut down on the number of queries you have to respond to each month.
3. A Blanket Loan Could Save You Money
As a landlord, a blanket loan could save you money both in closing costs and when refinancing. Just think of the savings you’d receive if you only had one loan to refinance when you want to switch to a new loan, and one time to pay the costs of refinancing.
4. Leaves Room for Expansion
If you’re a landlord with a dozen or more rental properties, odds are you’re aware of a common obstacle many property owners face when acquiring additional properties—you are only allowed to maintain a certain number of mortgages at once. When it comes to expanding and renting a greater number of properties that can become a barrier that quickly becomes a problem.
Often, landlords will set up separate limited liability companies (LLCs), each with a small number of mortgages. A blanket loan, however, can benefit you even more in this case because it enables you to own more properties with a fewer number of loans.
5. A Release Clause Makes Selling Easier
A release clause will allow you to sell one of your rental properties covered by the blanket loan without being required to pay off the mortgage in its entirety. In fact, this is one of the characteristics that makes a blanket loan so appealing to many landlords.
Instead of paying off the entire mortgage, you will be required to reduce the amount of the loan so the LTV ratio will remain at or below the specified level (65-70% LTV).
6. Finance Different Types of Properties
As a landlord, you may want to invest in different types of properties. A blanket loan can be used to finance almost any rental opportunity from residential homes to multi-family, and even undeveloped land where no structures exist. As a general rule, hard money and private money lenders will specify that all property covered under the mortgage be of the same type, such a mortgage covering only 1-4 unit residential income producing properties, or all commercial warehouses, or only multi-family 5+ unit apartments. So, a lender could require a portfolio to contain only residential units or commercial buildings, but usually not a combination of the two. Sometimes for short-term bridge blanket loans, lenders may allow a mortgage covering both residential and commercial properties.
Explore Your Blanket Loan Options
If you’re looking for a way to mortgage your rental properties that will save you money over time, leave room for expansion, and require only one monthly payment for multiple properties, a blanket loan might just be right for you. These types of mortgages are typically asset-based so the application processes, as well as qualifying requirements, are different than traditional loan types. The benefits of a blanket loan can prove more lucrative for your investment future. When you’re ready to explore private money blanket loans, First Capital Trust Deeds can help.