You have two main options to take cash out of multiple investment properties. Your first option is to obtain separate investment property mortgages for each individual property.
The benefits of obtaining separate loans for each property include that if there is an issue with a single property it does not affect the other properties because they are not cross-collateralized. Additionally, you may be able to obtain better loan terms including a lower mortgage rate for a specific property, depending on the cash flow characteristics of the property and other factors.
Also, having individual mortgages for the properties makes it much easier to sell properties in the future as compared to financing multiple investment properties with a single loan. This is a very important consideration if you frequently buy and sell properties as obtaining mortgages for each property offers much greater financial flexibility.
The table below shows investment property mortgage rates and closing costs for leading lenders in your area. We recommend that you contact multiple lenders to find the best investment property cash out refinance terms.
There are also downsides to using individual mortgages to take cash out of each rental property. Most notably, the qualification guidelines for investment property loans are relatively rigid and there is less of an opportunity for negotiation.
For example, for a cash out refinance of an investment property, the maximum loan-to-value (LTV) ratio is typically 75%. If you want to access more equity in your property, then individual mortgages may not be the preferred financing method.
The reserve requirements are also relatively strict with the more investment properties you own, the more reserves you are required to hold at closing. Plus, you cannot use proceeds from the cash out refinancing to meet the reserve requirement which could deplete your financial resources, at least until after the mortgages closes.
Additionally, lenders typically limit the number of investment properties they are willing to finance with conventional mortgages to ten properties. So if you are looking to take cash out of more than ten properties then individual mortgages may not work.
Finally, if you obtain separate loans for each property, the closing costs really start to add up. You may be able to arrange a discount with the lender but the cost may be significant depending on the number of properties you are financing.
Your other option for taking cash out of multiple investment properties is to finance all of the properties with a single, cross-collateralized mortgage. With this financing approach you take out one loan secured by all of the investment properties.
The advantages to using a cross-collateralized loan are that you only need one loan instead of multiple mortgages which may streamline the process and lower your closing costs. Additionally, the terms for this type of mortgage are usually more negotiable as compared to a standard investment property cash out refinance.
For example, depending on the lender and the number of properties you are financing, you may be able to negotiate a lower mortgage rate and fees or a reduced reserve requirement. You also may be able to take out more in total cash than you could with individual mortgages for each property.
A cross-collateralized mortgage is technically a commercial loan rather than a residential loan which means that it is not subject to standard mortgage qualification and eligibility guidelines. This provides more flexibility for you to work with the lender to structure loan terms that reflect your financing priorities and specific situation.
A cross-collateralized mortgage may also be a better option if you own a significant number of investment properties because of the conventional loan policy that limits you to financing ten properties. In short, the larger your property portfolio, the more a cross-collateralized loan makes sense.
The downsides to using a cross-collateralized mortgage include that if something goes wrong with the loan, you could lose all of your investment properties as opposed to losing a single property if you use individual mortgages.
Cross-collateralized loans also restrict your financial flexibility and what you do with the properties going forward. For example, it may be challenging if you decide to sell one of the properties in the future because that impacts the underlying collateral of the loan.
Depending on how the loan is structured the lender may need to approve any property sales or asset transfers. If your financial situation changes and you need significant liquidity, this can create a potential challenge.
Cross-collateralized investment property mortgages are usually provided by larger regional or national lenders with commercial banking operations. In most cases, commercial lenders keep these loans on their books which is also known as a portfolio loan.
You can use the FREEandCLEAR Lender Directory to search by lender type and loan program. For example, you can find banks in your state that offer portfolio loans.
Although I am somewhat biased toward the separate mortgage financing option because it provides greater financial flexibility, my recommendation is that you explore both separate and cross-collateralized investment property mortgage options to determine the financing approach that is right for you.
"B2-2-03, Multiple Financed Properties for the Same Borrower." Selling Guide: Fannie Mae Single Family. Fannie Mae, August 7 2019. Web.« Return to Q&A Home About the author