Quick Answer
When building a rental portfolio, consider consistent entity ownership, title insurance coverage, existing liens, access rights, easements, restrictions, financing structures, and thorough documentation across the portfolio, planning ahead for future refinancing, transfers, and sales.
A rental portfolio is more than a collection of individual properties. It is an interconnected set of assets, and title issues in one property can affect the entire portfolio. Here are the key considerations for investors building a rental portfolio.
A Portfolio Is Ten Chains of Title
Each rental property has its own chain of title. An issue in one property does not affect the others, but it does require individual attention. If you hold ten rental properties, you have ten separate title searches, ten title commitments, and potentially ten title insurance policies. Each needs to be managed correctly.
Think Beyond Acquisition
When acquiring a rental property, think beyond the closing. Consider:
- Future refinancing: Will the title support a refinance when rates change or you want to pull equity? Clean title at acquisition makes refinancing easier.
- Future transfers: If you later want to move a property between entities or transfer to a trust, clean title at acquisition makes that process smoother.
- Future sales: When you eventually sell, the buyer's title company will examine the title. Problems that existed when you bought may still exist when you sell if they were never resolved.
- Portfolio-level financing: If you obtain a portfolio loan, the lender will require title work on all properties in the portfolio. Title issues in one property can affect the entire portfolio financing.
For more on entity ownership, see buying investment property through an LLC.