Buying an investment property, whether it is your first or fifth, is a great way to diversify your investments and plan for retirement. However, financing multiple rental properties large and small can require you to know your way around the application process for real estate financing. Here are some recommendations to help you in securing financing to purchase an income rental property.
Shop Around For a Lender
When you are ready to take the step and purchase a rental property, you will need to find financing for the purchase to help you make the investment. Unless you have cash to pay for the property, you should expect to get a loan either with a bank or with a private lender. There are many options available, and the more information you have about the process, the better you will be able to make an informed decision on acquiring the right financing.
Be sure you shop around with different lenders to get the lowest rate and most favorable terms possible. If this is your first rental property, you may likely be able to get a loan based on your personal income and credit. This type of loan would be through a mortgage bank loan, which you can shop for with a mortgage broker or the bank you already do business with.
However, if you already own a home and possibly already own a rental property, your personal credit may be maxed out in terms of applying for another traditional bank loan because your debt to income cannot be increased any further. So, as another option, you can apply with a private lender to buy the investment property. You can find a private lender or a hard money lender by searching online. If you have a network of real estate investors or belong to an investing club, you can find referrals for good private lenders to help you out.
Understand Your Rental Property's Potential
When you are seeking out a private lender for your next rental property, you will need to be able to show that the property's income will cover its expenses by a certain amount. Instead of providing your private lender with your proof of personal income and your credit score, you will need to provide details that the property will have adequate cash flow, indicating that the investment will be successful. Your private lender is not going to loan you money to buy a property that you will not be able to rent for a percentage over the expected mortgage payment. So, instead of the lender looking at your debt-to-income ratio, they will evaluate the property's debt service coverage ratio.
Contact a real estate private loan program provider to learn more.