Investors - Frequently Asked Questions
What financing options are available on investment properties?
For conventional financing, you will typically need a 20% down payment until you reach 4 loans in your name. It will then jump to a 25% down payment for properties 5-10. Some lenders have programs that only require 15% down for your first 4 properties.
As you pick up more property, lenders are going to be more concerned with "cash reserves" as well. They need to make sure that if your tenant doesn't pay rent, you will still make the mortgage payment. There are many variable to consider that will be unique to your situation. It is best you have a consultation with a competent loan officer who has experience working with investors. CONTACT US, we can discuss your goals and refer you to the right lender.
Can i borrow more than the purchase price in order to have money to fix-up the property?
Most lenders will want to see that you "have skin in the game" and will only loan you a percentage of the purchase price, even if the home appraises for more. However, here are a couple of other options;
Private Lenders
If you have a property "under contract" with the right profit margins, then you will likely be able to find a money partner that will finance the renovation of the project for a return on their investment when you re-sell the property.
Rehab/Construction Loans
There are loan programs available that will allow you to borrow off of the After Repaired Value (ARV) of the property. I work with one lender that has a new program. They can loan both the purchase price and the money to do repairs as long as the "appraisal" of the ARV justifies the loan amount.
I don't want to be a landlord, but I want to invest in real estate?
Personally, I suggest you manage your own properties until you own 5 or more rentals. We (Marchant Real Estate Group) are willing to help you along the way... but there is no substitute for hands-on experience. If you have managed your own properties for a while, you will be better equipped to select the right property management company. However, I realize this is not an option for a lot of you, so the next best thing is to get a personal recommendation. Here's ours...
Can I buy another home, and turn my existing property into a rental?
Maybe... It depends on your credit and financial situation. Consult with a competent lender to explore your options.
As a general rule... If you have less than 30% equity in your current property, you will likely need adequate "cash reserves" to cover 6 months payments for BOTH properties. If you have 30% or more in equity in your current property, then the cash reserves could drop to 2 months reserves.
Are there still tax advantage to owning rental properties?
First of all, consult a professional when dealing with tax matters. Real estate offers better tax advantages than any other investment. Just about every expense associated with rental property is deductible. Mortgage interest, depreciation, repairs, travel, property management, home office, etc. If your reach your maximum allowable deductions in a given year, you can even carry the additional losses forward to the next year. Read more...
