When it comes to achieving success in your chosen career path or in your company, it is always important to understand that there are levels to achieve your goals. There is no quick fix, no quick scheme to get rich, and certainly not a path to follow. Investing in real estate is no exception. When your clients are first investing in real estate, turning a profit, let alone building a solid real estate portfolio, can be daunting.
Here at RCN Capital we want to be there every step of the way and provide an answer to a tough question or loan program for almost any business that comes across our desks. In this article, we will break down the differences and benefits of two levels of real estate investment and discuss in which scenarios it makes more sense to invest in a single asset than to expand and manage a portfolio with numerous properties involved.
Dealing with a single asset is usually the best course of action when starting out with real estate investments. Trying to get your hands on a range of different properties too early can be overwhelming, creating problems and setbacks that a seasoned investor can handle but a new one cannot.
Think of it that way. To become a “pro” at real estate investing, your client must be able to manage all types of real estate. Starting with individual assets is a great way to find your groove. They are a lot easier to work with and the fix and flip program at RCN is a great way to do it. With individual assets, you can gain experience much faster and have an impressive number of flips and, above all, a lot of capital in your pocket within a few years. In addition, managing long-term rental properties can open your eyes to just how valuable an investment in real estate can be. Passive income can open your eyes and really show that a portfolio is worth working towards, but it shouldn’t be rushed.
Experience is a key factor here as your customer can quickly improve their creditworthiness. If he has enough experience and a respectable FICO score, he can qualify for the best interest rates and leverage and make more money on every property you invest in.
Managing individual assets is also a useful way for your client to learn skills at a pace that is more suitable for new investors. As landlords understand rehab projects and budgets, realize whether or not a property is flowing at an acceptable and honest cash flow, the list goes on. Single asset management is also a crucial skill as not every property is ideal for a portfolio loan with RCN. It is also important to know how to segregate properties so that a successful portfolio does not suffer. Single property property management is the stepping stone that you need to master before moving on to building a portfolio. The benefits of a portfolio loan are next.
A strong portfolio is an asset that a real estate investor can be proud of. It also makes a normally hectic job much more organized and efficient. Portfolio loans not only offer a central service for managing numerous properties from a single source, they also offer the potential to reduce costs. If your client has a number of properties that fit into the portfolio guidelines, as well as the experience of managing those properties over the long term, the portfolio loan is for you.
Portfolio loans follow the guidelines of the 30 year program at RCN, so the leverage for these types of loans is very competitive. Borrowers can get up to 80% of the Lending Value and can expect interest rates as low as 3.85%. The interest rate on portfolios is crucial here as your client may have a number of existing properties with much higher interest rates. If you choose to consolidate a portfolio loan with RCN, you can cut these interest rates significantly.
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In these scenarios it is worth noting to manage these properties over the long term. With RCN there are partial release fees, so you benefit from sticking to these properties for the long term. In addition to the unpaid loan balance (UPB) for the property that the borrower wishes to remove from the portfolio, an additional payout of 20% is granted. This is important when trying to decide which of your investment properties to include in a portfolio.
Another additional benefit of using portfolio loans with RCN is usually a 30-year term. We require properties to have an actual value of $ 100,000. However, for properties in a portfolio, that number will drop to $ 75,000 as long as the average of All Properties is still above the $ 100,000 threshold. For example:
- Real Estate 1 Actual Value: $ 77,000
- Property 2 Actual Value: $ 89,000
- Property 3 Actual Value: $ 145,000
- Property 4 Actual Value: $ 160,000
- Total portfolio average: $ 117,750
In this scenario, we would have to approve the RCN management, but it’s good to know that real estate investors offer flexibility. As long as real estate cash flow is good, our management tries to approve these types of deals instead of rejecting them.
Other benefits of portfolio loans include consolidating monthly payments, saving on legal costs, acquiring lower interest rates relative to other existing interest rates, and potential savings on property valuations.
Obtaining a portfolio loan with RCN Capital certainly offers a number of advantages. It just depends on when your customers are actually ready. It’s a move that is about the long-term growth of their real estate investor career and that can prepare your clients for decades of success in the industry. Offering competitive pricing and leverage, RCN Capital will guide you every step of the way to answer any questions and make sure the deal is right for everyone involved.
About the author
Nate Zielinski, Junior Business Development Coordinator, joined RCN Capital in autumn 2020. He will add his ambitions, communication skills, teamwork and speaking skills to RCN’s business development team. Nate’s goal as a member of the business development team will be to forge new, long-term relationships with brokers and borrowers, and to maintain the strong relationships that RCN Capital already has. Nate’s previous work experience includes sales, advertising, copywriting, and social media. Nate graduated from the University of Connecticut in 2015 with a degree in journalism and a related field of communication while working for the school newspaper and radio station.