5 Tips for Financing Investment Property

Reprinted from RIS Media’s Housecall

5 Tips for Financing Investment Property

By Jennifer Acosta Scott

(TNS)—The housing market crash has become a distant memory, and home prices are looking healthy again—but does that mean there are good opportunities for investing in the residential real estate market?

Home values are climbing in most places. According to the National Association of REALTORS®, or NAR, 93 percent of major metro areas saw gains in prices for existing, single-family homes during the third quarter of 2018 compared with a year earlier.

While interest rates remain low, the days of quick, easy financing are over, and the tightened credit market can make it tough to secure loans for investment properties. Still, a little creativity and preparation can bring financing within reach of many real estate investors.

If you’re ready to borrow for a residential investment property, these tips can improve your chances of success.

Make a Sizable Down Payment
Since mortgage insurance won’t cover investment properties, you’ll need to put at least 20 percent down to secure traditional financing. If you can put down 25 percent, you may qualify for an even better interest rate, says mortgage broker Todd Huettner, president of Huettner Capital in Denver.

If you don’t have the down payment money, you can try to get a second mortgage on the property, but it’s likely to be an uphill struggle.

Be a ‘Strong’ Borrower
Although many factors—among them the loan-to-value ratio and the policies of the lender you’re dealing with—can influence the terms of a loan on an investment property, you’ll want to check your credit score before attempting a deal.

“Below (a score of) 740, it can start to cost you additional money for the same interest rate,” Huettner says. “Below 740, you will have to pay a fee to have the interest rate stay the same. That can range from one-quarter of a point to two points to keep the same rate.”

The alternative to paying points if your score is below 740 is to accept a higher interest rate.

In addition, having reserves in the bank to pay all your expenses—personal and investment-related—for at least six months has become part of the lending equation.

“If you have multiple rental properties, (lenders) now want reserves for each property,” Huettner says. “That way, if you have vacancies, you’re not dead.”

Shy Away From Big Banks
If your down payment isn’t quite as big as it should be or if you have other extenuating circumstances, consider going to a neighborhood bank for financing rather than a large national financial institution.

“They’re going to have a little more flexibility,” Huettner says. They also may know the local market better and have more interest in investing locally.

Mortgage brokers are another good option because they have access to a wide range of loan products—but do some research before settling on one.

“What is their background?” Huettner asks. “Do they have a college degree? Do they belong to any professional organizations? You have to do a little bit of due diligence.”

Ask for Owner Financing
A request for owner financing used to make sellers suspicious of potential buyers, during the days when almost anyone could qualify for a bank loan. Now, it’s more acceptable because of the tightening of credit. However, you should have a game plan if you decide to go this route.

“You have to say, ‘I would like to do owner financing with this amount of money and these terms,’” Huettner says. “You have to sell the seller on owner financing, and on you.”

Think Creatively
If you’re looking at a good property with a high chance of profit, consider securing a down payment or renovation money through a home equity line of credit, from credit cards or even via some life insurance policies, says Ben Spofford, an Ohio home remodeler and former real estate investor.

Financing for the actual purchase of the property might be possible through private, personal loans from peer-to-peer lending sites like Prosper and LendingClub, which connect investors with individual lenders. Just be aware that you may be met with some skepticism, especially if you don’t have a long history of successful real estate investments. Some peer-to-peer groups also require that your credit history meet certain criteria.

“When you’re borrowing from a person as opposed to an entity, that person is generally going to be more conservative and more protective of giving their money to a stranger,” Spofford says.

About marilynsellshollisterrealestate

I am a native Californian born in Los Angeles and have resided in San Benito County since January 30, 1959. I attended the University of Southern California. I am a licensed Real Estate Broker, license #00409787, active for almost 45 years. I started my career in 1972 and still am totally committed to the highest level of service to my clients. I am currently associated with Intero Real Estate Services. I am Past President of the San Benito Association of Realtors, serving in the role on numerous occasions. I was a Director of the California Association of Realtors for over 18 years, having served on numerous committees. I also served 2 terms representing the California Association of Realtors at the National level, NAR. I am a certified SRES (Senior Real Estate specialist), since 2005. My community involvement has included membership in the Hollister Rotary Club, serving as their first woman President in 2002. In the late 1960's, I became a member of the El Torillo Chapter of Children's Home Society, and served as President, and was also President of the Tri-County Council of CHS, which is today Kinship Center, and I am currently a Senior Active. I am a member of the San Benito Chamber of Commerce. From 2002-2008, I served on the Board of the Hollister Downtown Association and was their President from 2006-2007, and still serve on sub-committees of this organization. And, I am currently serving my 3rd term on the Community Foundation. My record of performance and my reputation have made me who I am in the industry. I am a household name in San Benito County, when you think of Real Estate. My name is recognized not only in Hollister, but in our neighboring counties, Monterey, Santa Cruz and Santa Clara counties. I have been involved in land development, marketed several subdivisions, sold ranches, commercial leasing, bank-owned properties, short sales and own a Property Management Company, Hollister Rental Properties, for more than 35 years. I am proud of my sales record and for the majority of my career I have been in the top 1% of major Real Estate Companies including Van Vleck Realtors, Cornish and Carey, Contempo, Seville-Contempo, Century 21, Coldwell Banker and finally Intero Real Estate services for the last 15 years. Using my skills in negotiating, mediation and transaction closure, during 2010 and 2011, I was involved with the City of Hollister's First Time Home Buyer Down Payment Assistance Program. The program was the City's Redevelopment Agency, under Bill Avera, with the assistance of CJ Valenzuela who was working with the County of San Benito. CHISPA, a non-profit, was responsible for restoring homes to equal to new condition that the City had taken back in foreclosure, or that they had acquired. When the homes were restored, we put them on the Multiple Listing Service and we went out and promoted the City's Down Payment Assistance Program. Buyers were screened and qualified by our preferred lenders. I facilitated workshops for First Time Buyers explaining the programs. I negotiated the contracts for the City of Hollister and with the Buyers. With this program, I closed 2 homes in 2010, and 4 homes in 2011. On a personal note, I am married to Richard Ferreira, a retired General Contractor/Developer. We have a combined family of six daughters, six grandsons and 3 granddaughters. We share commons interests in travel, movies, entertaining, and Richard has picked up my love of cooking. Our spare time is spent with family and enjoying our grandchildren.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s