When it comes to being successful in your chosen career path or business venture it is always important to understand that there are levels to achieving your goals. There is no quick fix, no get rich quick scheme, and certainly not one path that must be followed. Investing in real estate is no exception. When you are first starting out investing in real estate, making a profit, let alone building a solid portfolio of properties can seem daunting.
Here at RCN Capital, we want to be there every step of the way with an answer to a tough question or a loan program for almost any deal that comes across our desks. In this article, we are going to break down the differences and benefits of two levels of real estate investing and discuss in what scenarios it is wiser to stick to investing in a single asset versus expanding and managing a portfolio with numerous properties involved.
Handling a single asset is typically the best practice when starting out in real estate investing. Trying to get your hands on a bunch of different properties too early on can be overwhelming and lead to problems and setbacks that an experienced investor can navigate but a new one cannot.
Think of it like this. To become a “pro” at real estate investing, you have got to be able to handle all different types of properties. Starting with single assets is a good way to find your groove. They are much easier to handle and the fix and flip program at RCN is a great way to do so. You can rack up experience at a much quicker rate with single assets and within a couple of years, you can have an impressive number of flips under your belt and more importantly plenty of capital in your pocket. Additionally, managing long-term rental property can open your eyes to just how valuable investing in real estate can be. The passive income can be eye-opening and truly show that working towards a portfolio is worth it but shouldn’t be rushed.
Experience is a key factor here because you can improve your credit score at a rapid rate and once you have plenty of experience and a respectable FICO score, you can qualify for the best rates and leverages and start making more money on every property you invest in.
Managing single assets are also a useful way to learn skills at a pace that is more suitable for new investors. Being a landlord, understanding rehab projects and budgets, discerning whether or not a property is cash flowing at an acceptable and honestly the list goes on. Single asset management is also a crucial skill to have because not every property is ideal for a portfolio loan with RCN. Knowing how to separate properties so it doesn’t drag down a successful portfolio is key as well. Single-asset property management is the stepping-stone that is necessary to master before moving on to building a portfolio. The benefits of a portfolio loan are up next.
A strong portfolio is an asset that a real estate investor can be proud of. It also makes a usually hectic profession much more organized and efficient. Not only do portfolio loans conveniently provide a one-stop service for managing numerous properties, but they also have the potential to reduce costs. If you have a number of properties that fit into portfolio guidelines coupled with the experience to be able to manage those properties long term then the portfolio loan is right for you.
Portfolio loans follow the guidelines of the 30-year program at RCN, so the leverages are very competitive for these types of loans. Borrowers can receive up to 80% loan-to-value and can expect rates to be as low as 3.85%. The interest rate for portfolios is key here because you could have a number of existing properties with much higher rates. If you choose to consolidate to a portfolio loan with RCN you can cut those rates by a substantial margin.
Managing these properties long-term is worth noting in these scenarios. There are partial release fees at RCN, so you benefit from hanging on to these properties over the long haul. There is an additional 20% payoff on top of the unpaid loan balance (UPB) for the property the borrower wants to remove from the portfolio. That is crucial to keep in mind when trying to decide which of your investment properties you want to include in a portfolio.
Another additional benefit to using portfolio loans with RCN is typically on 30-year loan terms, we require that properties have an as-is value of $100,000, but for properties in a portfolio we move that number down to $75,000 as long as the average of all the properties is still above the $100,000 thresh hold. For example:
- Property 1 As-Is Value: $77,000
- Property 2 As-Is Value: $89,000
- Property 3 As-Is Value: $145,000
- Property 4 As-Is Value: $160,000
- Overall Portfolio Average: $117,750
In this scenario, we would need RCN management to approve, but it is good to know the flexibility is available for real estate investors, and as long as the properties cash flow well, our management is looking to approve these types of deals rather than deny.
Other advantages of portfolio loans include consolidating monthly payments, saving in legal fees, acquiring lower interest rates relatives to other existing rates, and possible savings on property appraisals.
There are certainly a number of benefits to graduating to portfolio loans with RCN Capital, it is just a matter of when you are, in fact, ready. It is a move that is all about the long-term growth of your real estate investment career and can set you up for decades of success in the industry. RCN Capital is offering competitive rates and leverages and will be with you every step of the way to answer any questions and ensure that the deal is right for all parties involved.
Nate Zielinski, Junior Business Development Coordinator, joined RCN Capital in 2020. He adds his ambition, communication skills, teamwork, and public speaking ability to RCN’s Business Development team. Nate’s goal will be to recruit new, long-lasting business relationships with brokers and borrowers as well as maintain the strong relationships RCN Capital already has in place. Nate’s prior work experience includes sales, advertisement, copywriting, and social media. Nate graduated from the University of Connecticut in 2015 with a Journalism degree.