If you’re a commercial real estate (CRE) investor with more than one property, then you know juggling multiple mortgages with different interest rates and loan terms can sometimes be a chore and tie up your liquidity. If this sounds familiar, a viable option may be to obtain a blanket mortgage, where all your properties are under one loan agreement with one lending company.
Though the benefits or “pros” of a blanket mortgage may seem obvious, there are also few “cons.” Keep reading to learn the details of a blanket loan and if it sounds like an option for you.
What is a Blanket Mortgage?
A blanket mortgage allows you to get a loan from one lender with one set of terms and make one payment for all your real estate. It allows you to buy, hold, sell, or replace various properties under one mortgage without triggering a due-on-sale clause. Typically, there is no limit to the number of properties you can mortgage under a blanket loan.
Benefits of a Blanket Loan
When you own more than one investment property, there are benefits to utilizing a blanket loan, starting with a simplified process that frees up time and money, and goes on to potentially help you expand your real estate empire.
Moreover, since there is often no limit to the number of properties you can have under a blanket mortgage, you can also use the clout gained from the larger loan to access additional equity, negotiate better loan terms, or simply lower monthly payments.
Simplified mortgage paperwork and some cost savings.
A blanket loan allows you to apply for and secure multiple commercial mortgages at once, with only one credit approval. This saves time and money when compared to initiating and managing separate loans, where you would have to repeatedly submit credit information, proof of employment, and asset verification and be more involved in each transaction.
Once you have a blanket mortgage, there’s the potential to sell one or more of your real estate investments with only minor adjustments to your existing blanket mortgage. If you were to pay back the portion of the loan that each sold property represents, you wouldn’t have to refinance the entire loan. This is called a “partial release clause.”
A partial release clause allows the lender to release one of the properties from the mortgage as you pay down the mortgage or when you sell the property.
Refinance to consolidate multiple commercial loans.
The simplest reason why you might choose a blanket loan is to consolidate multiple commercial loans from different lenders under one financing arrangement. It is not uncommon for real estate investors to come up against the issue of only being allowed so many individual commercial mortgages. A blanket loan solves this barrier to growth.
Gain access to additional equity.
Combining all the equity across your portfolio into one blanket mortgage could allow you to buy more real estate or improve existing properties by maximizing the amount you receive in a cash-out refinance. By pooling your properties together under one loan, you can often gain access to a greater amount of cash in hand, freeing up resources for further investing.
It also pays to have one $3 million dollar mortgage with a single lender, for example, rather than six $500,000 loans at different lenders. One large mortgage lends itself to better negotiating power and loan customization.
Disadvantages of a Blanket Mortgage
As with any financial opportunity, there are cons to the pros, and a blanket mortgage is no different. Here are a few possible disadvantages to weigh as you consider a blanket loan.
Blanket loans aren’t meant to be long-term loans.
They aren’t fully amortized and aren’t likely to be renewed by the lender.
It may be difficult to sell individual properties without a partial-release clause.
If the loan isn’t structured as a partial-release loan, and there is a due-on-sale clause, then the sale of one property could cause the entire mortgage to come due.
It may be harder to qualify for a blanket loan.
Blanket loans are subject to more personal, financial, and business scrutiny when compared to qualifying for a single mortgage. You will be required to have a higher credit score, larger cash reserves, and a bigger down payment (as much as 50%).
Closing costs are often higher.
Closing costs, such as appraisal fees, surveys, title searches, and other fees might be higher when compared to a single mortgage, as you will pay those costs based on the total loan amount.
A higher LTV is required.
If refinancing multiple mortgages into one blanket mortgage, you will need substantial equity in the properties you plan to refinance, typically with a loan-to-value (LTV) ratio of 50-to-75%.
Blanket loans are limited by state.
Because each state has its own guidelines for blanket loans, you will need a blanket loan for the properties you own or want to buy in each respective state. Thus, if you have properties in Texas, Missouri, and Florida, you will need three separate blanket loans.
All properties serve as collateral for each other.
All the blanket loan properties act as collateral for each other. Though this can also be a “pro”, in some cases, defaulting on the mortgage means your lender can foreclose on all the properties in order to recoup its losses. Thus, if one property fails to bring in the expected cash flow, it could jeopardize your entire portfolio.
Blanket Mortgage vs Wraparound Mortgage
A wraparound mortgage is a loan where the lender assumes responsibility for another single mortgage.
Let’s say, for example, the sale price of a property is $500,000 but there is already a loan on the property for $200,000. If the buyer provides a $100,000 down payment, then the lender will give a mortgage on the remaining $400,000. This new mortgage wraps around the existing mortgage of $200,000 because the new lender will now be assuming responsibility for the old mortgage.
Blanket Mortgage vs Bridge Loan
Bridge loans differ from blanket loans in two ways: they are short-term and they cover only one property.
Commercial bridge loans are short-term loans used by real estate investors until permanent financing is obtained. Bridge loans are often used to pay for renovations on a newly purchased income property; once renovations are completed the property then qualifies for permanent financing. They’re also used to refinance commercial properties or to purchase raw land that will later be developed.
How to Get a Blanket Loan
Blanket loans aren’t necessarily easy to find. You will need to look for specialized banks, credit unions, or mortgage brokers that deal in commercial blanket loans. If you meet the high-credit, high-net-worth criteria, have a large enough down payment, and wish to consolidate your commercial real estate portfolio into one easy monthly payment, Westwood Net Lease Advisors can help you locate a reputable lender.
To Wrap it Up – After Learning the Pros & Cons, is a Blanket Loan Right for You?
If you wish to consolidate payments on your commercial real estate properties, access equity from your CRE portfolio, finance additional real estate but you’re maxed out the number of single property mortgages available to you, or develop undeveloped parcels of land, a blanket loan may be right for you. There are a few cons to consider, but most of those can be overcome by meeting the financial criteria and understanding your options.
Westwood Net Lease Advisors specializes in helping investors purchase triple net lease investments with all cash, commercial mortgages, and the 1031 exchange. We have a vast nationwide network of reputable lenders, attorneys, title companies, and more who help our clients with their real estate investment needs. Be sure to reach out to our team today for a no-obligation conversation about your net lease investing goals. 314-997-5227