Blanket Mortgage, Bridge Loan, commercial real estate, commercial real estate investor, commercial real estate properties, loans, mortgage

FYI-- Multi-parcel mortgages

Blanket loans are typically used to finance residential rental properties and real estate developments such as subdivisions. The financial and collateral underwriting is similar to the traditional mortgage. Real estate lenders focus on the ability to pay, the willingness to pay, and the value of the collateral. Cash reserves, management experience and LTV ratios are all carefully evaluated. Cash flow is also tested under high vacancy scenarios.

The most important characteristic of this type of loan is a "release clause," which allows the borrower to sell off one or more of the securing parcels without having to refinance. This differs from a traditional mortgage, which typically requires the borrower to pay the loan balance in full if the securing property is sold.

Pro's & Con's of Blanket Loans:

High closing costs
Some investors assume the cost of financing several properties together will be less than if they were financed individually. Its not unheard of to end up paying a higher rate, and youll also most likely need a lower LTV. Closing costs will also be high since they are based on the total number of properties and not the amount of the loan.

The lender will also require that all properties be appraised and may also want you to have physical inspections performed on the properties. Combine these with title searches and title insurance, and completion of any repairs or maintenance, and you could be adding a hefty amount to the loans closing costs.

Blanket loans are limited to one state
Because each state has its own guidelines for blanket loans, you will need a blanket loan for properties in each state. Thus if you have properties in New York, New Jersey, and Florida, you will need three separate blanket loans.

All properties serve as collateral for each other
Because all the properties act as collateral for each other, defaulting on the mortgage means your lender can foreclose on all the properties in order to recoup their losses. Thus, if one property fails to bring in the expected cash flow, it could jeopardize your entire portfolio.

When things are going well, dont start piling on deals just because you can, as you may regret it later. Rents can fall, especially if a local large employer leaves the area.