Commercial Blanket Loan Questions

[Aaron Kelley]

I was reading a thread here on BP about private money investors, and ways that those investors can get their money back sooner than later. The topic of doing a refi as a commercial blanket loan after purchasing several SFH rentals was brought up. I was wondering if there was anyone who can shed some additional light on this? How does it works for the private money investor and for the Real estate investor, perhaps some pros and cons if possible?

If there is a threat already talking about this, please send the link and i'll continue my questioning there.

Here's a link to the thread that sparked this question.
http://www.biggerpockets.com/forums/49/topics/74060-how-does-private-lender-make--on-sfh-rentals

[Dion DePaoli]

Blanket loans are often found in development situations where the developer is developing a larger parcel, has sub divided into lots and sells lots off individually. The loan will contain a "Partial Release Clause" which allows for the sale of one lot individually and the pay down of loan principal as it relates to that one lot. In that situation a blanket loan is functional and useful allowing the autonomy of lots being sold and only having one loan. This would be opposed to having a a single loan on every lot, which would be a pain in the rear.

In another situation, two or more properties are pledged as collateral for a loan where a loan might not be viable or as a function of reducing the lender's risk or as a function obtaining more favorable terms for the borrower such as a higher loan amounts, cash out options and perhaps lower interest rate to name a few.

The key to the loan is two or more properties are pledged or cross collateralized as security to the loan. As an investor or manager you would want to considered when it is valuable to your plans and needs to consider this type of loan. As an example, if you had exceeded the allowable investment property mortgages conventionally, a blanket loan might be a good idea. Perhaps you want to purchase and rehab a seriously dilapidated asset. Where that asset on its own can not carry a loan. By offering additional properties as collateral and letting the lender put a blanket loan over the group you get the loan you need and the lender insulates its risk sufficiently.

The genesis of this post was the concept of taking out (or paying off/back) a private investor. I believe it was even stated the investor was not interested in a long term investment such as a rental property. In that sense, there is nothing special about a blanket loan opposed to any other loan. Conventional single property loans have low rates and favorable terms currently in the market place. Unless you are unable to obtain that conventional loan there is not really a great need to pursue a blanket loan.

When Ann Bellamy mentioned it in the previous thread it was relative to a portfolio of properties being present and taking out the investor. If you had a portfolio of properties (more than one) and you wanted one loan, that is a blanket loan. However, there is nothing special about the loan which makes for a more viable investor take out. You could accomplish the same thing putting a loan on each property in the portfolio. This is assuming you have not crossed the 10 mortgage rule and each property in the portfolio is sufficient security against its own note.

If you find yourself in a situation where you need to contemplate pledging more than one property to obtain a loan ensure you know what your terms are. As Bill pointed out they are not really long term financial solutions. Further the loan to value ratio per property may not provide sufficient capital to actually pay off the interests of the investor.