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Here’s a common, nasty-surprise scenario many beginner investors have to confront: An investor with a few properties makes a move to expand their portfolio. They have an excellent credit score and are confident that they’ll have no trouble getting future loans. Except that the lender denies them financing.
What happened? Actually, the investor did nothing wrong, per se—they just hit the conventional loan limit imposed by both Fannie Mae and Freddie Mac. Most new investors are unaware of this cap, which is 10 properties per investor, including your primary residence, until they hit it.
The wrong conclusion to make here is that, as an investor, you don’t have any way of scaling your business. But the cap does mean that you have to do some financing research and planning beyond your ninth property. Investors should be thinking about strategic financing as early as possible if their goal is to scale their portfolio.
Here’s how to avoid the nasty-surprise scenario and reframe your investment property financing as a scaling strategy decision made before you buy your first property—not a problem you solve when you’re already stuck.
Why Do Fannie Mae and Freddie Mac Have the 10-Property Cap?
Once you cross the 10-property threshold, Fannie Mae and Freddie Mac stop viewing you as an individual investor and start viewing you as a commercial enterprise, one far more exposed to economic swings. Below that threshold, financing is based on your personal financial health. Beyond it, your personal finances no longer matter: lenders need proof your investment business can weather a downturn or vacancy spike, and your income is disregarded entirely. This makes sense given that Fannie Mae and Freddie Mac are GSEs whose mission is supporting primary homeowners, not commercial investors.
The Mistake: Treating Financing as a Deal-by-Deal Decision
This is a shift in perception, not in your actual finances. Your income and credit score haven’t changed, only how lenders see you. That means scaling investors need a mental shift too: stop treating purchases as linear, one-at-a-time decisions and start strategizing ahead. If growth is the goal, your financing strategy should be in place by property #2, not discovered by accident at loan #11.
The Solution: Portfolio and DSCR Lending
If this is all beginning to sound a little esoteric, rest assured: There are practical solutions that go along with the shift in strategy, and they’re widely available to investors. They are portfolio and DSCR loans, offered by lenders such as LendingOne, which work differently from conventional loans. These are asset-focused loans, not borrower-focused loans (which is what conventional loans are).
Instead of assessing your ability to cover your debt, a DSCR (debt service coverage ratio) loan assesses the property’s ability to cover its own debt. Typically, a DSCR lender will look for a DSCR ratio of 1.2 or higher; that is, they’ll want to see that your property generates at least 20% more income than is needed to cover costs.
A DSCR loan is a great option for investors who are still planning on buying investment properties one by one. If you’re planning on owning a total of 15 properties, for example, DSCR loans will help you overcome the 10-property threshold.
However, if your plan is to own and manage a significant number of real estate investments, you’ll need to start looking into portfolio loans, which assess an entire portfolio’s ability to cover unexpected costs rather than the financial capabilities of individual investments. These loans are efficient and crucial for investors looking for significant expansion of their business or those planning to consolidate debt.
What Planning Ahead Actually Looks Like
It can all sound far-fetched if you’re on your fifth property with conventional loans. But still, if your long-term vision is a substantial property portfolio, you need to start thinking differently from the very beginning. What that can look like in practice is lining up a DSCR/portfolio lender now, before you need one.
What you don’t want to do is delay this strategic shift until you hit your ninth property and start getting rejected by lenders. Trying to scramble for financing your next property will set you back, resulting in deals that fall through and, ultimately, a less successful investment business.
LendingOne is a lender built for the investor who plans to scale—not just a “next option” once you’re rejected elsewhere, but a strategic partner from earlier in the journey. LendingOne’s DSCR/portfolio loan products are flexible and come with options for new investment purchases, refinancing, and cash-outs. Moreover, there are options for break-even properties, which will hugely benefit investors who can’t quite meet the stringent 1.2 ratio requirement for a DSCR loan.
The best place to start is by contacting Lending One to discuss DSCR/portfolio loan options as part of a long-term scaling plan.
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