Why It Matters
Here's why a credit facility matters: most real estate deals die because capital isn't ready. A credit facility solves that by pre-approving your borrowing capacity so you can move in days, not weeks. Banks, debt funds, and bridge lenders structure these for established investors — typically those with a 10+ property portfolio or $2M+ in assets — and the standing commitment means you skip the full underwriting cycle on every acquisition. The tradeoff is covenant compliance: miss a DSCR trigger or let your LTV drift too high and the lender can restrict or eliminate your access.
At a Glance
- Structure types: Revolving (draw, repay, redraw), term loan, construction, or portfolio credit facility
- Commitment fee: Charged on unused capacity — typically 0.25–0.75% per year — whether or not you draw
- Interest: Paid only on the outstanding drawn balance, not the full facility limit
- Typical qualification: 10+ financed properties or $2M+ portfolio value, 2+ year track record, DSCR of 1.20x or higher
- Facility limits: Range from $500,000 to $50M+ depending on lender, borrower history, and collateral pool
- Covenant triggers: LTV caps (commonly 65–75%), minimum DSCR, minimum occupancy rates, net worth maintenance
- Who offers them: Regional banks, national banks, private debt funds, bridge lenders
How It Works
The commitment is the product. A credit facility isn't a loan you close on and walk away from — it's an agreement the lender executes with you, setting a total credit limit, a draw period, pricing terms, and covenants. Once in place, you submit a draw request when you identify a deal. The lender reviews the collateral property, confirms covenant compliance, and funds within days. A revolving credit structure lets you repay and redraw repeatedly over the facility's life — typically 12 to 36 months — making it ideal for investors running active acquisition pipelines.
Pricing has two components. First, you pay a commitment fee on the undrawn portion — the cost of having capital standing by. At 0.50% annually on a $5M facility, that's $25,000 per year before you borrow a dollar. Second, you pay interest only on what you actually draw, typically at a spread over SOFR or prime rate. This structure rewards frequent deployers — a borrower sitting mostly undrawn for 12 months pays for optionality without using it.
Covenants define the guardrails. Every credit facility includes maintenance covenants you must continuously satisfy to keep the facility available. Common triggers: loan-to-value can't exceed 70% across the collateral pool, DSCR must stay above 1.20x, occupancy must hold at 85%+. Covenant violations give the lender the right to freeze draws or accelerate the full balance. Investors who pair a term loan alongside a revolving facility can separate long-term fixed assets from short-term working capital, which reduces covenant pressure on each piece.
Real-World Example
Lisa owns 14 rentals across two markets with a combined portfolio value of $4.1M. She arranged a $2.5M revolving credit facility with a regional bank, collateralized against nine of her properties at SOFR + 2.75%, with a 0.50% commitment fee on undrawn capacity and covenants requiring 1.25x DSCR and 70% maximum LTV.
Three months later, Lisa goes under contract on an off-market duplex at $318,000. She submits a draw request Tuesday morning — $254,400 at 80% LTV. The bank reviews the collateral and confirms compliance by Thursday. She closes Friday.
The duplex nets $980 per month. She retires the draw eight months later via a refinance, restoring $254,400 in revolving capacity. The commitment fee on that draw for eight months: $847. That's the cost of staying ready.
Pros & Cons
- Speed of execution: Draw requests clear in days; no full underwriting cycle per acquisition
- Interest efficiency: You pay interest only on the drawn balance, not the full committed limit
- Repetitive access: A revolving structure lets you repay and redraw repeatedly — capital compounds with the portfolio without re-qualifying each time
- Reduced transaction friction: One facility negotiation covers multiple deals; no origination process per property
- Competitive positioning: Being able to close in days — rather than 30–45 days — gives you real leverage in negotiating off-market deals
- Commitment fee drag: The 0.25–0.75% annual fee on undrawn capacity is a cost even when you're not actively deploying
- High entry bar: Lenders typically require a 10+ property portfolio, $2M+ in assets, and 2+ years of documented track record — not accessible to early-stage investors
- Covenant risk: A single property vacancy spike or rate adjustment can push DSCR below threshold, triggering a freeze on your draws at the worst possible moment
- Variable rate exposure: Most revolving facilities price over SOFR or prime — rising rates increase your carrying cost on every drawn dollar
- Lender discretion: Unlike a fixed portfolio loan, the lender can reduce, suspend, or decline to renew a credit facility at maturity
Watch Out
- Covenant monitoring is non-negotiable. Lenders don't always send warnings before freezing draw access. Run your portfolio's DSCR and LTV monthly against facility thresholds — don't find out about a violation when you're trying to fund a deal.
- Commitment fee math before signing. A $3M facility at 0.50% annually costs $15,000 per year in commitment fees alone. If your deal volume won't deploy at least $1M–$1.5M per year through the facility, the cost-per-deal economics may not pencil versus standard acquisition financing.
- Collateral pool management matters. As you add properties to the collateral pool, lenders reappraise the full pool periodically. A market dip that reduces collateral values can push your pool LTV above the covenant ceiling — triggering a draw freeze even if the new properties perform well.
- Renewal is not guaranteed. Credit facilities have stated maturities — commonly 12, 24, or 36 months. If your portfolio performance or market conditions shift, the lender may decline to renew on the same terms or at all. Always have a financing backup plan before the facility's maturity date.
The Takeaway
A credit facility turns capital access into a standing asset — one that compounds in value as your deal velocity increases. For investors running active acquisition pipelines, the speed and flexibility outweigh the commitment fees and covenant management burden. Get one after you've built the portfolio and track record to qualify; until then, a conventional acquisition loan per deal is both simpler and cheaper.