How is it possible to own such large portfolios of rentals?
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How do people get mortgages for so many properties or several expensive aprtment buildings? Wouldn't a loan officer be very cautious to award such high debt-to-income ratios? Even if you have excellent credit, most incomes from ladlords and apartment complex owners cannot support millions of dollars in mortgages. Do they instead look at it as this building will provide x amount of dollars in rent which in turn will ensure our mortgage is paid? Just curious how this works, Thanks.
How is it possible to own such large portfolios of rentals?When it comes to commercial properties used to generate income, it is all about the cash flow of the property. The debt to income ratio becomes a factor only in evalauting the owner/investors as a guarantor. So long as the cash flow can support a debt service coverage ratio of 1.2x (some lenders will do 1.1x but typically most look for 1.25x) all is good.
There are many ways to structure CRE loans...some are done as guidance lines of credit which offer an interest only component and there are also term loans but with an interest only carry fixed for a certain period and then the loan is either amortized fully at preferred fixed/floating rate or termed out.
In any event, the attitude of both the borrower and the lender is that the properties are to be held for a short term and eventually sold....very few of these deals are long term ventures so every one hopes to cash in when the property is sold.
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