Are you ready to build your rental property empire?
Rental portfolio loans are intended for real estate investors who own or are planning to purchase multiple rental properties.
They offer longer-term financing and competitive interest rates, and approval is based on cash flow rather than the borrower’s finances.
In this guide, we’ll explore the ins and outs of rental portfolio loans and what you need to do to get approved.
Start your application with Park Place Finance.What is the purpose of a rental property portfolio loan?
Traditionally, rental portfolio loans have allowed investors to consolidate multiple properties under a single mortgage.
Properties can be a mix of types, such as:
- Single-family homes
- Multi-family units
- Condos
- Townhouses
This helps simplify your properties’ management and allows easy equity access as leverage for future properties.
Rental portfolio loans may also be structured as individual loans managed by the same hard money lender.
The specific approach depends on the investor’s needs and the lender’s offerings.
What is a DSCR loan?
Rental portfolio loan approval generally depends on the property’s cash flow rather than the borrower’s personal income.
Lenders use the debt-service coverage ratio (DSCR) to measure the net operating income (NOI) from the rental properties against the portfolio’s total debt obligations.
DSCR = Net Operating Income (NOI) / Total Debt Service
DSCR loans are the most popular rental loan option for real estate investors because they offer greater flexibility and faster closings than other long-term loan options.
These loans also can be structured to include several properties under one loan.
What are the benefits of DSCR loans for rental portfolios?
Rental portfolio loans offer many benefits to real estate investors.
Park Place Finance’s elite DSCR loan product can be used to purchase multiple rental properties.
Let’s dig into the benefits of DSCR loans for rental property portfolios.
Cash flow over income
Because DSCR loans focus on property cash flow over personal income, a world of more lucrative opportunities opens to real estate investors.
Many real estate investors have unique financial situations due to the nature of their investments.
As a result, their income and employment status often will not meet the strict requirements of conventional loans.
Lenders can more accurately assess a loan’s risk by focusing on the income produced by the properties.
Simplified approvals
Hard money lenders like Park Place Finance have years of investment experience.
Because of this specific experience, they can more rapidly and accurately determine the viability of a project based on key information provided by the borrower.
This results in faster approvals for investors, who can then expand their portfolio quickly and take advantage of new, unique, or time-sensitive opportunities.
More favorable terms
The focus on income-producing properties means lenders have a solid, data-backed picture of what will and won’t, or what is working vs. what isn’t.
This can lead to more favorable rates and terms.
As you build your rental portfolio and relationship with your lender, you’ll generate higher leverage and lower risk, giving lenders greater confidence in your investments.
What are the requirements for rental portfolio loans?
Rental portfolio loan requirements will vary by lender.
Look at the following criteria for DSCR loan approval with Park Place Finance.
Calculating DSCR involves:
- NOI: Subtract your operating expenses from your gross operating income
- Total debt service: Includes your principal and interest payments and any other loan-related charges
Divide your NOI by your total debt service to get your DSCR.
DSCR can be calculated monthly or annually.
A DSCR above 1.0 means the property generates a positive cash flow, while a DSCR of less than 1.0 means the expenses exceed revenue and the property has a negative cash flow.
Park Place Finance allows a DSCR as low as 0.75, but the higher, the better.
To improve your DSCR, consider adjusting your properties’ rental income and expenses to boost cash flow.
Documentation
Park Place Finance doesn’t need to verify your income or see tax returns, but they will request the following:
- Most recent two bank statements
- Purchase contract (if applicable)
- List of real estate owned
- Property insurance
- Subject property lease
- LLC/entity docs (if applicable)
- Loan payoff (if refinance)
Be sure to check with your lender before submitting documentation, and respond to any additional requests as quickly as possible to keep the process moving.
Property types
Eligible rental income types include long-term or short-term rentals, vacant properties, and Airbnb.
Park Place Finance DSCR loans are designed for various rental properties, including:
- Single-family homes
- Duplexes, triplexes, and quadplexes
- Warrantable condos
- 2-50 property portfolios
- Urban properties within 42 states
If you need to complete a rehab on the property first, we also offer fix-and-flip loan options.
Credit
We require a minimum credit score of 660.
Contact us to discuss your loan options if you have a lower credit score.
Additionally, our loans only report to credit when in default, so you can avoid adding debt to your credit report.
LTV
We allow a purchase loan-to-value (LTV) ratio of up to 80% and a cash-out refinance LTV of up to 75%.
Loan limits
Park Place Finance offers loan amounts from $100,000 to $2,500,000.
Higher loan limits give investors more freedom and flexibility to add their desired properties to their portfolios.
Rental property portfolio loans: An investor’s strategic advantage
Rental property portfolios result in more predictable and manageable cash flow.
Managing multiple properties with a single lender simplifies investments and reduces errors and overall risks.
The goal is growth, and rental portfolio loans can help you achieve these goals through a faster, more streamlined process with maximum leverage.
How to apply for a DSCR loan with Park Place Finance
Working with a lender that you can trust reduces stress and allows you to focus more on growing your portfolio and less on navigating numerous financial obligations.
Park Place Finance is your trusted hard money lender, with more than $1 billion in loans funded, 17 years of business under our belt, and nationwide lending services.
Ready to take the next steps in your investment journey? Fill out our brief online form or give us a call at (866) 407-1599.