Blanket loan or separate loans for a rental portfolio?

Families who own several rental properties eventually face a structural choice. Each property can carry its own loan, or several properties can sit under one blanket loan. Neither is better in every case. The right answer depends on how long you plan to hold, whether you expect to sell individual assets, and how much flexibility you want later.

How each structure works

A separate loan is secured by one property. It is underwritten on that property's income and value, and it can be paid off, refinanced, or assumed on its own schedule.

A blanket loan, sometimes called a portfolio loan, is secured by several properties at once. The lender looks at the combined income and combined value. One note, one payment, one maturity date.

Where a blanket loan helps

A single loan across a portfolio can simplify life for a family that holds for the long term.

• Fewer moving parts. One closing, one set of loan documents, one servicer, one maturity to manage.
• Stronger assets carry weaker ones. A property with soft income can be financed alongside properties with steady income, which may help the group size better than it would alone.
• Lower closing costs per property. Legal, title, and lender fees are spread across more collateral.
• Easier reporting. Annual financial reporting to one lender is usually simpler than reporting to several.

What a blanket loan costs you in flexibility

The same features that simplify the loan can limit you later.

Selling one property

Every property is collateral for the whole loan. To sell one, you need the lender to release it. Most blanket loans allow releases, but on terms. Read the release provision closely. Common conditions include:

• A release price, often set above the loan amount allocated to that property
• A test showing the remaining properties still meet the lender's coverage and leverage requirements
• Prepayment penalties on the amount paid down

If you expect to sell assets one at a time over the next several years, those conditions matter more than the interest rate.

Cross default and cross collateral

A problem at one property becomes a problem for the whole loan. If one building loses a major tenant or needs a large repair, the lender's rights extend to every property in the pool. With separate loans, trouble at one address generally stays at that address.

One maturity date

A single maturity concentrates refinance risk. If the date arrives during a weak credit market, the entire portfolio must be refinanced at once. Separate loans with staggered maturities spread that risk over time.

Where separate loans make more sense

Separate loans tend to fit families who:

• Plan to sell, exchange, or gift individual properties
• Hold properties in different entities or with different partners
• Want to keep problems at one property from touching the others
• Prefer to refinance each asset when its own terms are most favorable

The tradeoff is more administration. You will have more closings, more lenders, and more reporting. For many families, that is a fair price for control.

Questions to answer before choosing

Before you talk to lenders, settle a few points with your CPA and attorney:

• How long do you expect to hold each property?
• Will any property be sold, exchanged, or transferred to the next generation?
• Are all the properties owned by the same entity, or by different ones?
• How much personal guarantee exposure are you willing to accept across the group?
• Would a mix make sense, with a blanket loan on core holdings and separate loans on assets you may sell?

That last option is common. A portfolio does not have to use one structure throughout.

A closing thought

The best structure is the one that matches your plan for the properties, not the one that closes fastest. If you have loans coming due across your holdings, our loan maturity tool can help you lay out the dates in one place. When you are ready to talk through the structure, reach out to us.

Thomas Capital Holdings does not provide tax or legal advice. Consult your CPA and attorney about your situation.