Terms
- Minimum of 3 Properties
- 3-5 Year term with the ability to extend
- Minimum loan amount of $300,000
- 30 year ARM
- 75% LTV max
If you’re a commercial real estate investor with more than one property, then you know that juggling multiple mortgages with different interest rates and different terms can sometimes be a chore.
With a blanket loan, you make one payment to one bank with one set of terms. It allows you to buy, hold, or sell numerous properties under one mortgage without triggering a due on sale clause.
Since there is often no limit on the number of properties an investor can have under a blanket loan, investors can use the clout they gain from these larger loans to access additional equity, negotiate better loan terms, or simply lower monthly payments.
For smart investors, blanket loans offer numerous advantages.
Consolidate Properties For A Refinance
The simplest reason why an investor might choose a blanket loan is to consolidate numerous loans from different lenders under one financing arrangement.
At the same time, the additional properties can be used to negotiate better terms with lenders, thus lowering your monthly payment. This, in turn, increases your net cash flow and raises the properties’ value.
Gain Access to Additional Equity
Let’s say you wanted to get together funds for a down payment on another investment property, or to rehab one you already own. By pooling your properties together under one loan, you can often gain access to a greater amount of cash than you would normally have access to.
Generally, banks won’t finance a loan for a lot that isn’t free of mortgages. Although lenders claim the policy protects them in the event a developer defaults on the loan, this can be a problem if you’re a builder or developer who needs to release liens already present on the land.
However, if a property is bundled together with other lots under a blanket loan, the developer can utilize a partial release provision.
A partial release clause is added to a mortgage in order to allow the lender to release one of the properties as the owner pays down the mortgage.
The lender assigns a loan value to each property and specifies a percentage of the sale price or the loan amount that must be paid in order to release a property. Many lenders will want a higher percentage to reduce the total outstanding debt, however, you can often negotiate this percentage.
It might seem like it would make more sense to prorate the loan among the various properties and release each property when the amount received equals the loan value assigned to each unit. Lenders don’t do this, however, since they assume that there is some amount of error in the appraisal amount.
This could leave them with a loan where some properties have already been released, and the remaining properties are worth less than the remaining amount of the loan.
This provision allows the developer to finance the lots, and remove the lien from each lot when it is sold and the lender receives a portion of the borrowed loan.