There is one key to success for investors who want to establish a real estate business: leverage.
As you would expect, to develop a wide-ranging real estate business, investors need to expand their rental property portfolio. For real estate investors, buying multiple rental properties comes with its unique challenges. Central to these challenges is financing a multitude of properties. This begs a question many real estate investors ask themselves: how many mortgages can I have?
Watch our real estate video below to figure out what 3 mortgage documents you have to review as an investor:
How Many Mortgages Can You Have as a Real Estate Investor?
Let’s get right into it. How many mortgages can you have? The more accurate question to ask yourself is actually “How many mortgages can I have at once?”
About a decade ago, mortgage lenders were allowed to provide real estate investors with up to four mortgages at once. However, in 2009, the Federal National Mortgage Association, or FNMA, issued a change. As a means to recover the crashed US housing market at the time, the FNMA expanded the number of simultaneous loans an investor can receive to 10. Since then, real estate investors have been able to have up to 10 investment mortgages concurrently.
Before you go rejoicing, keep in mind that financing a property means you also have to deal with mortgage rates. If you’re planning to finance a property to start a rental property business, make sure the math checks out first. Use a rental property or Airbnb calculator to see if you can afford to make prompt payments on your loan with enough to get a good return on your investment.
How to Finance Multiple Properties
While real estate investors can finance 10 investment properties at a time, these properties cannot be financed through typical conventional loans. Instead, there are four investment property financing methods investors can use to buy multiple properties.
1. FNMA 5-10 Properties Program
When the FNMA expanded the number of mortgages a real estate investor may receive to 10, they also set a program to allow investors to do so. This program, called the FNMA 5-10 Properties Program, differs from conventional loans in many requirements, including credit score, down payments, among others. The criteria a borrower must meet for this program include:
- Must already own 5 to 10 properties with financing
- 25% down payment for a single-family investment property, 30% for 2-4 units
- A credit score of at least 720
- For a mortgage to refinance, a 30% equity, regardless of property type, is required
- No late mortgage payments for the past year
- No bankruptcies or foreclosures in the last 7 years
- 2 years of tax returns indicating rental income from all rental properties
- 6 months of PITI reserves on each of the properties
- Sign a 4506-T form
Since the FNMA implemented this change, its program has not thrived as they expected it to. Many mortgage lenders have not offered this program since its inception. The main reason is that with many strict requirements, verifying and qualifying applying borrowers is harder work than it’s worth. While this program may benefit investors, who manage to find lenders that offer it, it is not necessarily a go-to method for financing real estate on this advanced level.
2. Hard Money and Private Money Lenders
A more common and feasible financing method is to receive loans from hard money and private money lenders. These mortgage lenders allow real estate investors to acquire any number of investment loans they desire. Both hard money and private money mortgage lenders also prefer experienced real estate investors for many reasons. For starters, these loans tend to be for the short-term compared to conventional loans. Hard money loans, for instance, can last up to 36 months. As a result, mortgage rates are also higher for these types of loans.
The best advantage of these loans is that they are open to negotiation, especially private money lenders. These lenders often do not require credit history, personal tax returns, income documentation, among other typical criteria. The deciding factors for these lenders are mortgage rates, as previously mentioned, and the value of the investment properties the real estate investors are interested in. Due to their flexibility and negotiations, hard money and private money lenders are among the top options for buying rental properties.
3. Blanket Loans
Another common answer to the ‘how to finance multiple properties’ question is to use blanket loans. What exactly are blanket loans? As the name suggests, blanket loans finance more than one investment property, or piece of land, at once. By using a blanket loan, real estate investors only need one loan to finance multiple properties as opposed to multiple investment mortgages for each property.
Blanket loans are typically used by builders, developers, and commercial real estate investors, but they have begun to gain traction among residential real estate investors. An obvious benefit to this type of loan is the efficiency and time-saving it provides. Instead of applying and qualifying for a loan for every rental property an investor wants to purchase, an investor can simply use a single loan for buying rental properties. Blanket loans are also more inexpensive than individual loans for multiple properties. Instead of paying mortgage rates and payments per property, investors are technically paying for only one loan.
When it comes to how many investment properties are covered in an individual blanket loan or how many blanket loans an investor can receive, the answers vary based on the mortgage lender. Blanket loans have requirements that are similar to hard money and private money loans. Credit history, debt to income ratio, and income documentation are not required to acquire a blanket loan. Instead, lenders tend to focus on an investor’s cash reserves.
4. Portfolio Financing
The fourth method is to obtain a loan from portfolio lenders. Portfolio financing is fairly common among local lenders and banks. By using portfolio lending, the lender does not have to follow Fannie Mae guidelines. This leads to less rigid qualification requirements, such as credit history and debt to income ratios. Real estate investors can even qualify for a 20% down payment for each loan through portfolio financing. A portfolio lender, as the name suggests, does not have any limits on the number of loans they can provide to investors. The significant requirements for borrowers are cash reserves and income support and documentation.
If you want lenders to get behind you, most will want to see that you’ve found a great investment property that promises positive cash flow. You may be able to find one on your own, but if you want to find multiple positive cash flow properties, you’re going to need Mashvisor’s real estate investment tools. Start searching for rental properties now and find properties that lenders can’t say no to.
Investment property financing for multiple rental properties is far off the conventional loan standard, but it is definitely possible. Each method mentioned has its own positives and negatives, and each has shared requirements and features. Before you begin investing in rental properties, explore your available options and reach out to your local lenders.