Did you know that most rental properties are owned by individuals? In fact, over 70% of single-unit rental properties are owned by one person.
If you want to add to that statistic, there are a few things you need to know about real estate investing. First, you'll want to learn the different ways to secure financing for rental properties.
Keep reading to learn the best tips.
1. Save for a Sizable Down Payment
As a real estate investor, you should know that mortgage insurance won't cover investment properties, so you'll likely need to put at least 20% down to secure traditional financing for rental properties.
If you put down more than 20%, you could secure a better interest rate.
A larger down payment is beneficial in the long run because you end up paying less in interest. However, there is more to lose if the investment turns out to be a bust.
2. Be a Strong Borrower
There are different factors that dictate loan terms when it comes to rental property financing. Among them are the lender you choose and the loan-to-value ratio.
To finance a rental property, it's best to have a good credit score. If you have a less-than-great credit score, you are going to have to pay a higher interest rate to secure money.
3. Consider a Broker or Local Bank
Qualifying for a rental property loan through a large national financial institution is tougher than qualifying for funds through a broker or local bank.
Brokers and local banks offer more flexibility and they might be interested in investing locally because they know the market.
Mortgage brokers have access to a wide range of loan products so you'll want to complete more research before settling on one.
4. Ask for Owner Financing
Instead of applying for rental property loans, you can ask sellers for owner financing. This method once made sellers suspicious of a buyer, but now that funding requirements have tightened up, it's more commonly used.
If you decide to go this route, be prepared by knowing what to ask for.
Choose the amount of money you need and the terms you want to follow. You'll need to make this fair for you and the seller.
Being prepared for negotiations shows the seller that you are serious about the transaction.
5. Tap Into Home Equity
You can use your primary residence or other investment property as a form of rental property financing by tapping into your equity.
There are a few ways to do this that include the following:
- Home equity loan
- Home equity line of credit (HELOC)
- Cash-out refinance
With this form of financing, you can typically find lower interest rates.
Financing for Rental Properties: Your Options
Securing financing for rental properties requires a lot of research. You'll want to find forms of financing that you can qualify for to have the best chance of reaching your goals.
Consider the tips in this guide to find a route that works for you.
Once you secure your property, contact us to hire property management experts that can help make your investment worth it.