Buying multiple rental properties at once is, indeed, a very lucrative venture, especially if you are looking to grow your real estate investment portfolio quickly. Not only can it help you grow your investment portfolio, but this strategy will also provide multiple income streams each month. So, why doesn’t every beginner real estate investor do this? Because they have no clue how to finance multiple rental properties at once. In fact, the very idea seems impossible for most beginners.
Now, although it’s not easy, we have put together a few options that will most certainly help you learn how to finance multiple rental properties. So, without further ado, here we go!
One Loan, Multiple Rental Units
One way to finance multiple rental properties is to buy multiple units in one building. All types of multi-family real estate fall within this category including apartment buildings as well as duplexes and quadruplexes.
So, how to finance multiple rental properties of this type?
You can apply for regular mortgage loans at the local bank. It is similar to the mortgage you would get to buy a house to live in, with a few extra requirements, of course. However, you must start saving up for a down payment for investment property way before you seek funding. Typically, it is a 20% down payment. But, you can still find mortgage lenders who will require less.
Related: All You Need to Know About a Mortgage for Rental Property
Financing Two to Four Rental Properties
How to finance multiple rental properties when you’re considering buying fewer than 5?
You can turn to your local mortgage broker or bank for investment property financing. For this number of rental properties, you need the following:
1. A credit score no less than 630
2. A down payment for investment property ready
3. Three months of cash reserves for the desired mortgage payment
However, one thing you need to keep in mind is the type of lender you turn to. It’s best to avoid major banks. Most of the time, such banks tend to be meticulous with the borrowers, so they require stricter criteria. Instead, work with local brokers and look for banks which are usually more willing to finance less than five rental properties.
Related: Tips for Getting a Mortgage for an Investment Property
Financing Five to Ten Rental Properties
For this number of rental properties, the bank will finance your real estate investments if:
1. You have a credit score of 720
2. You have six months worth of reserves for protection against vacancies
3. You have a down payment of 25% for single family homes and 30% for multi-family real estate properties
4. You do not have any history of foreclosures or bankruptcy
5. You did not fall behind on mortgage payments (for your primary residence) for the last year
Note: Even though the bank will agree to finance multiple rental properties this way, it will push over the ownership and the risks towards Fannie Mae’s 5-10 Financed Properties Program. To learn more about this program, visit Fannie Mae – Official Site.
Financing More Than Ten Rental Properties
For this amount of real estate investment loans, you want to turn to major lending associations such as Bank of America. But, just like the other options, you must have your credit score ready as well as your down payment.
Is It Possible to Take Multiple Mortgages for Rental Properties?
Yes, it is possible to take several mortgages at once to finance multiple rental properties. However, the number of mortgages will depend on your mortgage lender and its restrictions. Some will let you take as many as is permitted and others will limit you based on your credit score and ability to cover payments. So, for this, you will have to perform proper due diligence.
How to convince your mortgage lender to finance multiple rental properties for you
First of all, make sure you are ready for the amount of paperwork the lender will require. Your mortgage lender should be able to calculate your debt-to-income ratio which changes with every rental property investment you make. So, prepare all your financial statements as well as other financial data that the lender requires. You will need these to testify for your ability to repay the mortgage.
Second, include initial calculations of the mortgage in your business plan. It must consist of the amount of down payment you can provide, the amount you expect the lender to offer and the amount of monthly payment you can pay. You can use a mortgage calculator for accurate results.
Last, but not least, before you even talk to a lender about how to finance multiple rental properties, go ahead and figure out some numbers. Calculate all the return on investment metrics such as the cash flow, the cap rate and the cash on cash return for each of the rental properties. You want high rates to convince them after all. Also, analyze the location and find out all about appreciation rates as well as rental demand in that local market. Finally, put it all together in a real estate business plan and provide it to your mortgage lenders.
How can you calculate all that?
To perform a complete and thorough rental property analysis, you will need a rental property calculator. It will also serve as a mortgage calculator by taking into account how all the mortgage data you provide for it affects the ROI of a rental property. Sign up to Mashvisor now to get your hands on this real estate investment tool that will help you find the kind of rental properties your mortgage lender will want to get behind!
How to Finance Multiple Rental Properties: Other Ways
Regardless of the number of rental properties you are trying to fund, other methods might require a little more from you. For example, you can go with a blanket mortgage but be ready to face the risks of it.
You can also turn to hard money lenders. But, also, be ready to repay the mortgage in a short period. Otherwise, you might be subject to foreclosure.
Now that you know how to finance multiple rental properties, learn All You Need to Know About Rental Property Mortgage Rates in One Place.