As a fellow real estate investor, sometimes deals come along for multiple rental properties, and getting a blanket mortgage for those properties is an ideal situation. I just came over from doing some property rehabbing at one such unit today. The deal involved two duplexes that were several blocks away from each other, that had the same owners. So we negotiated the purchase of these properties (a great deal by the way, some 1% – 1.5% rent to purchase price ratio, after repairs) and set off to our banker to get a loan.
Working with a Great Mortgage Broker / Banker
Again, one of the key fundamentals to doing any legitimate business is having strong relationships with business to business units. Your mortgage broker or banker, any contractors, property managers, etc. must be of very high quality and at the cheapest possible price. I stressed quality first, because in today’s world the best price is often accompanied by some very unscrupulous business practices. Get references, and test your relationships before you do big deals with them. It might be a little more effort, but it is worth it, as you will see in a moment.
Getting the Blanket Mortgage
Luckily, I had started a relationship with a Vice President at a local bank who was aggressively trying to start a new branch office of their bank. Since my investor wanted to put the properties in the name of his LLC, we were steered in the direction of a commercial loan. I always knew of the existence of blanket mortgages, however I had never found any company or broker that would offer them to me. But with this connection, we were able to put together just such a deal.
Details of the Blanket Mortgage
After getting approval for loan, we found ourselves with the following loan details. It was a 5 year commercial loan with a 20 year fully amortized payment schedule, 7% interest that would reset to current market conditions at renewal, with a 40% down payment. Now, I want to be clear here, we were not forced to put down 40%, it was a choice my investor made to further limit his risk in the property, and increase his monthly returns.
Now this is a pretty good deal, considering that the blanket mortgage covered both properties, and we only had to pay one set of closing costs on the loan. Further, there was a condition placed in the loan documents that allowed title to one of the properties to be released after a certain remaining balance was reached. This type of loan greatly reduces the costs of acquisition. Just think of having to get two loans, two sets of closing costs, and if you are near your cap for number of loans allowed for one person / entity, how it would hurt your business now and into the future.
So I would advocate that anytime you are able to put together a multiproperty deal, get a blanket mortgage. It will only be beneficial to your business (unless of course you default on the loan).