Diversifying your investment portfolio has long been considered a savvy way for investors to survive the bumps and bruises of any investment marketplace. Diversifying your financial resources across a broad range of products like stocks, bonds, precious metals, and real estate is an example of broad diversification. Investment or rental property has long been a favorite vehicle of investors because in essence the investor is using other people’s money to pay off their debt. In addition, the investor is looking for appreciation of the underlying asset along with some tax incentives and other benefits. In a typical scenario the confluence of these factors combines to provide a real estate investor a unique and profitable asset. The financing of rental and investment properties is not that common, and these products are not well known but here are some current ideas about financing and purchasing rental and investment property assets.
Today’s investment landscape for financing a non-owner occupied (rental or investment) property can be challenging but with the proper guidance and information an investor can have an overall successful experience. The Great Recession caused a re-evaluation of lending criteria for this asset class as the proverbial “apple cart” got toppled in the late 2000’s and many lending institutions and banks were presented with thousands upon thousands of bad loans and subsequently an inventory of REO properties. Surprisingly, today the good news is financing rental and investment properties have become easier than in the recent past. With property values estimated to increase over the next few years this is actually great time to purchase a rental property – but you have to be diligent, savvy, and have certain criteria to qualify.
Typical Lending Requirements for Rental and Investment Properties
Here are a few things to make the process smoother and easier for an investor looking at purchasing rental or investment properties. Most lending institutions have a maximum loan amount of $625,000 and require over 40% down payment. In order to qualify for an investment property loan an investor needs: 1) landlord experience; 2) strong credit; 3) stable income; and 4) at least twelve months reserves in liquid accounts. Reserves are post-closed assets equaling twelve months of principle, interest, taxes and insurance. Most lending institutions have specific guidelines regarding the conditions of non-owner occupied (rental) properties, in case an investor is interested in buying a property which needs major repairs.
Be prepared to provide copies of two months’ worth of your bank statements, investment accounts, and retirement accounts. This means all pages of the statements which are delivered from the financial institution (you can’t just print out statements from the internet). You will need your last two pay stubs covering a 30-day period, your driver’s license, and Social Security card. If you are self-employed, you may be asked for some or all of the following items: 1) business license or occupational license; 2) letter from your CPA establishing two years’ self-employment; 3) your last two year’s tax returns; 4) business bank statements; and 5) business financial statements.
Owning investment or rental properties is a proven long-term investment strategy. There are many different asset classes to look at when attempting to invest for you and your family’s future. Real estate is that asset class where other people can participate in paying down your debt – which is one of the primary benefits of owning rental properties. However, one has to be diligent and consistent in their approach to this strategy. Once a property is selected and purchased hiring a professional property management company to help you is critical to maintain the maximum return on investment.
At Opes Advisors we have some flexibility with these loan amounts and guidelines. We can offer a $2,500,000 loan amount up to 70% of the property’s value, up to $5,000,000 loan amount to 50% of the property’s value. At Opes we have no limit on the amount of financed properties as most lenders will not lend to borrowers with more than four financed rental properties.
Bill Prainito is a Branch Manager and Mortgage Advisor with Opes Advisors. Bill works directly with clients to help them analyze their unique financial needs. As a Mortgage Advisor, he researches and presents the best fitting options, explains the details, makes sure that every client is comfortable and well-informed by keeping in close contact throughout the process. Bill is an involved, accessible presence right through closing — ensuring that every stage of the loan process moves smoothly. Email Bill at email@example.com or call him at 1.650.464.7813.