How to Get Portfolio Loans for Investing in Real Estate
Portfolio loans are just one of many lucrative financing option you can pursue when trying to scale your real estate investment business.
They are an especially popular option among real estate investors with multiple properties under their belt who want to explore funding options other than buying more homes out of pocket.
Portfolio loans help these investors leverage the equity in their properties so that they can continue building their assets and raking in that passive income of at least $250 or more a month per property.
Portfolio Loans are loans that are given from a bank with the banks money, instead of selling the loan to another company or organization like Fannie May or Freddie Mac. The loans that a bank holds onto are loans that are in their own personal “Portfolio” of loans. Just like a painter will have a “Portfolio” of paintings that they have done in the past, a bank has loans that it has given, and holds onto, as their “Portfolio of Loans”.
An Introduction to Portfolio Loans & Other Investment Financing Option
I’ve been in your shoes, asking myself the same questions. I’m here to tell you that getting your hands on a portfolio loan is actually not as complicated as it might sound.
Portfolio loans are a fantastic way to buy real estate, and I’ll be walking you through exactly how to do that.
If you’re interested in learning about other ways to get funding in order to start your real estate investment business, I have a video on my YouTube channel with the 14 best ways to finance your real estate investing deals.
Go check it out!
Financing through portfolio loans is just one of the ways you can launch yourself into the real estate investment industry so that you can quit that Job Over Broke job (J.O.B) so you can be successfully unemployed through tactful passive income.
When we’re talking about portfolio loans, what it really comes down to is this conundrum…
Is the bank going to sell off the loan to somebody else, or are they going to keep it for themselves?
Throughout this article, I’ll lay out some pro tips for you to guide you on how exactly to acquire portfolio loans, and then utilize them in your investment initiatives.
What Exactly is a Portfolio Loan?
Before we even begin to break down what a portfolio is, let’s start by better understanding the role of a mortgage broker at any given bank, big or small.
Think of mortgage brokers sort of as middle men. In short, these brokers mobilize the process of lending out money, and then selling that loan to another institution, bank, or company. Institutions are the primary recipients of these loans.
Typically, those institutions are government entities, like Fannie Mae or Freddie Mac, that are pretty much guaranteed to gobble up these mortgages.
In case you're unfamiliar with Freddie and Fannie, these federally-owned corporations work to keep the mortgage industry stable and housing affordable by purchasing bundles of loans from banks or lenders, and then sell those mortgages back to investors as something called “mortgage-backed securities.”
So, a homeowners progressively pay off their mortgage, those investors that purchased mortgage-backed securities earn compensation from those loan payments by homeowners. Once Freddie and Fannie sell those MBS's to investors, the return to the same banks or lenders as before to buy more mortgage bundles, hence why 70% of all loans are received by these government institutions.
For example, say you get a mortgage loan from Chase Bank.
Chase Bank makes money from that sale of course, but is also reaping profit from servicing the account. They sell the loan but guarantee proper administrative upkeep within the account and to oversee all the number crunching, which comes at price determined by whatever their set policies are.
What makes a portfolio lender different from a mortgage lender is that the lender is either a bank or an institution that’s lending their own money from their own portfolio.
Let’s say you’re an artist and over time you’ve accumulated a collection of all the paintings you’ve done for people to see. That is your portfolio. It’s tangible evidence of your competencies and the work you have to show for it.
Banks, lending institutions, and even local credit unions have portfolios too. These portfolios consist of loans they’ve kept and managed themselves.
Speaking from experience (because I actually did this at the start of my investing career), if you call a bank and ask them if they have portfolio loans, they’ll give you a yes or no answer. They won’t tell you exactly what their portfolio loans look like.
Creating a Relationship with a Bank
The reason why you want to utilize portfolio loans is because it will pave an opportunity to create a relationship with a bank.
If perhaps you’re investing in a certain city—and remember, we at Master Passive Income (my students & myself) invest in properties all over the country—but for this example you’re working with one particular bank and you’re asking them to borrow money. Then you get the loan and pay it back in due time with a set interest rate at your expense, to hold you accountable.
This is the first step in creating a relationship with a local credit union or regional bank. Their answer is likely going to be in agreement with lending you money.
If that’s their first time lending you money and you make your payments back in a timely manner, they’re going to begin to see you as credible borrower.
With that credibility you’ve displayed, the bank is going to feel more inclined to let you borrow even more money, given your proven track record of being able to pay that money back.
And that right there is essentially the inner-workings of portfolio loans. It’s the bank or credit union betting on you as a customer to make them more money by allowing you to borrow as much money as you need.
It’s mutually beneficial—you get the loan, and they receive business from a reliable borrower to include in their future portfolio.
2 Pro Tips on How to Get a Portfolio Loan
Pro Tip #1: Local Banks
I’ve already alluded to this, but use local banks to your advantage! Nationwide banks like Chase, Bank of America, Wells Fargo, etc. will not do portfolio loans.
You'll be working with this same lender throughout the entire lifecycle of your portfolio, which might end up being rather longterm depending on how reliable of a borrow you prove yourself to be. So you always want to prioritize a strong, transparent relationship with your lender.
Building a relationship with your regional bank through portfolio loans will make it simple to get that next loan when trust has already been established between you and the local bank of your choice.
They know that you’re going to make them money.
Before agreeing to a larger loan, your bank might want to double check your income status or skim other areas of your financial health which is completely normal.
They don’t want to be lending money to someone who has recently declared bankruptcy or has any discernible areas of concern in their financial history that might jeopardize the return of the loan.
At the end of the day, lenders care most about getting their money back over all else. Risk management is just one of those mandatory preemptive measures that they have to take.
If your record is clear, they’ll lend you the money you need. Woohoo!
Pro Tip #2: Call Up Local Institutions
Don’t hesitate to reach out any local institutions, credit unions, or regional banks to talk to them about their lending habits and what they lend for.
You’re also going to ask them about their portfolio loan objectives and whether they’re looking to sell to a business like yours.
Make sure to underscore the fact that you want to help them with the growth of their portfolio through the loan that they can offer to help your business grow as well.
By making note of the mutually beneficial aspects of a potential portfolio loan, the bank is going to appreciate hearing that you’re keep their wellbeing in mind.
And once you’ve secured than portfolio loan from a local institution, as I said before, if you keep with your payments and ensure that the bank is seeing profit growth, they’ll make sure you’re making money as well. It’s a two-way street.
As I mentioned, portfolio loan are just ONE of the ways to fund your real estate investment business. Be sure to check out my video, “14 Best Ways to Get Funding Real Estate Leverage for Investing Financing,” to learn about FHA loans, private money loans, bundle loans, and all your other subsidy options.
Investing in real estate is something that anybody and everybody can do successfully. If I can do it, you can too. Ready to take the first step toward financial freedom?
Click below to get my free real estate investing course to learn more.
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