1. CHOOSE THE RIGHT LOAN TYPE
A sound strategy to improve your profitability is to reduce the cost of servicing your debt. You can do this by lowering your interest rate as much as possible. There are various loan types available for rental properties. What suits your property’s needs will depend on your unique lending profile and the characteristics of your rental. Here are the FIVE BEST loan types to use when buying a rental property:
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Partnering directly with a lender is good for active investors who want to grow quickly. However, you’ll usually have to give up a portion of your equity to access this loan. REAL ESTATE LIMITED PARTNERSHIPS Best for: Active, high growth investors.
CONVENTIONAL MORTGAGE
PORTFOLIO LOANS
HOME EQUITY LOANS
PRIVATE AND HARD MONEY LOANS
Like a standard mortgage for a primary residence, a traditional mortgage uses a fixed or variable low-interest rate while using the property as collateral.
These loans can’t be re-sold and have different underwriting criteria. Portfolio loans allow for a lower credit score and smaller down payment but have higher interest rates.
A loan secured against the equity in your home. This financing option can be a revolving line of credit or a fixed loan with monthly payments. Best for: Landlords with significant equity built up in their homes.
Private lenders focus more on the value of the property and less on your income and credit score when evaluating loans, but you’ll usually need a higher down payment, most likely between 25-30%.
Best for: An owner-
Best for: Landlords who can’t qualify for a conventional mortgage.
Best for: Landlords who can’t qualify for a conventional mortgage.
occupied rental or investors with up to 10 rental units.
Choosing the right loan type takes time and research. While this overview can help you get started, you should really dig into which rental property loan is right for you.
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