Refinance Rental Portfolio

[Charles Burgess]

Hi BiggerPockets fam, I'll keep this post pretty simple.  I'm looking to do a blanket refinance of my current rental portfolio of 6 units (8 doors total) to access equity.  Any reputable recommendations from you guys? Thanks in advance, and as always, happy investing!

[Mike H.]

I've done several blanket loans over the years.  They stink - pure and simple.  Why not refi them individually with the same lender or a couple of lenders. Most blanket loan lenders will allow you to do partial releases so you could sell one at a time. Usually, they allocate a certain percentage of the loan to each house when you initially close your loan - based on values but then they also add a premium for the release so you're paying 110 or 120% of the allocation of the loan when you sell..

So lets say you have 4 houses and three of them are worth 100k and 1 house is worth 200k. Thats 500k in value and lets say they give you a loan for 400k.  They then allocate 80k to each of the three houses for the loan and 160k to the fourth one. That means 20% of the loan to the lesser valued houses (3) and 40% to the higher priced home (1) for a total of 100%.

When you sell one of the houses, you typically have to pay 110 to 120% of the allocation loan percentage based on current principal.  Lets say its 5 years later and you paid the 400k loan down to 350k and you sell one of the 100k houses for say 150k.

They calculate that its one of the homes that was allocated at 20%.  So 20% of the 350 is 70k plus the premium for release (premium goes towards paying down the loan so it isn't a fee) which means when you sold you'd have to pay down the loan 70k plus the 20% premium which would be another 14k.  And then they tack on some minor fees too. So you might have to pay 85k out of the proceeds towards paying down the loan.

But if you had them all in individual loans, you'd pay off the loan for that house and that would be it.  70k

Where its really difficult is if you have a 5 year or 7 year term on the blanket loan. You can try to renew if that lender is still in business or else you have to find someone else to do another blanket loan.

Blanket lender loans tend to have higher fees and poorer terms. Prepayment penalty is up there too. Usually 5-4-3-2-1.