Long term real estate acquisitions will most usually have conventional financing associated with the purchase. Such financing allows for fixed rates at terms amortized over 10 to 30 years as well as the lowest interest rates set aside for rental properties. However, sometimes a conventional loan cannotReal Estate Investing be used and a portfolio

lender must be used for the purchase. When and why use a portfolio loan and when do you know it’s time to get rid of the portfolio product and refinance into a conventional note?

If a property doesn’t meet conventional guidelines but is still income producing and the numbers work, a bank will be able to provide the financing you need. The loan will be underwritten to standards set by the individual bank and no one else’s. That means the loan can’t be sold to other investors, restoring the bank’s credit line or cash reserves. Portfolio loans are typically shorter in term, say three to five years with adjustable rates typically higher than fixed rates in the conventional market.

You know it’s time to get out of the portfolio product and into a lower fixed conventional rate when the property is brought up to conventional standards or whatever issue required the portfolio loan has been corrected. What issues? Perhaps you wanted to put as little down as possible and found a bank to issue a portfolio loan with only 10 percent down and now the increase in equity permits conventional financing. Or the property needed some repairs that a conventional lender required they be completed before issuing any loan but now those repairs have been made.

It’s time to get out of a portfolio loan when you can if you’re keeping the property long term. When forced into portfolio, find out in advance what needs to be changed about the transaction in order to be conventional eligible, then make plans to address those issues as soon as able.