As you already know, there are plenty of financing strategies that you could go with to fund your real estate investment business. In this blog, we are going to spot the light on loans as one of the best ways to finance a rental property. The question we will focus on is how to find the best rental property loans.
What every real estate investor must know is that investing in real estate is a procedure. Before getting into any kind of business endeavor, you must learn the process first. The same applies to financing a rental property. Therefore, here is our guide on how to find the best rental property loans for your investment business.
Related: Real Estate Investing for Beginners: Methods of Financing Rental Property
First: The “before” process
Before getting into action, make sure you do your homework. Keep in mind that nothing comes as easily as you might think. As we said before, everything is a process, and you have to go through it in order.
Now, what we mean by homework is the following:
What kind of property do you want to invest in?
Logically, you can’t just go to a lender and ask him/her for a loan if you have not figured out what kind of rental property you want to invest in. The best part of investing in rental properties is that it gives you a wide choice of property types. You can invest in single-family homes, multi-family homes, condos, or even apartments. Do proper research and decide what you are financially capable of and then decide what kind of property you want to invest in.
What rental strategy do you want to go with?
It is actually important to figure out whether you want to invest long term or short term. Sometimes, it makes a difference when applying for rental property loans. For some lenders, the rental strategy you want to go with makes a difference. For example, going with long-term rentals might make it easier for you to fund your investment with a loan. In this case, looking at the fact that you are going to have a steady income for a long period is a guarantee to the lender for on time payments. So, make sure you pick the right rental strategy when investing in rental properties.
Are you ready to become a landlord?
This might be the most important question to ask yourself before applying for rental property loans. Owning and managing a rental property is not as easy as you might think. It comes with many tasks such as dealing with tenants and keeping up with its financial situation as well as property maintenance.
Keep in mind that even though you can hire professional property management services, you are still the property owner. You will have to stay up-to-date with the property management firm in order to keep track of your rental property. You will also have to be present if any situation occurs. If you are ready to become a landlord and hold the responsibility, then go ahead and apply for a loan.
Related: What’s the Secret to Maintaining a Good Landlord and Tenant Relationship?
Is the rental property profitable?
The reason you want to invest in real estate is obviously to make money. Therefore, what you need is not just any rental property, but a profitable one. The easiest way to figure that out is to use the rental property calculator. This online real estate investing tool will help you decide whether a certain investment property is worth it. Also, it will help you compare it to other rental properties within the same location.
For this, you can check out Mashvisor’s rental property calculator. It will save you the pain of performing the investment property analysis as well as the real estate market analysis. Besides, you will get accurate estimations of return on your rental property.
Where to apply for rental property loans?
If you are buying your first rental property, then you might want to consider a couple of things. First, you want to look for a local bank at the beginning. Applying for rental property loans at a local bank might be a better option in terms of interest rate, terms, and requirements. Local banks usually have less strict conditions in order to encourage clients to work with them. So, take advantage of this and make sure you doublecheck their terms.
Second, try to avoid real estate brokers. It is not that working with a broker is a bad idea, it is just that you will not be dealing with your lender directly. A broker is someone who basically shops for loans for his/her clients. Therefore, he/she plays a role as a middleman and charges a commission on the deal. So, why go through extra expenses when you are already trying to get the money to fund a rental property?!
Second: The “after” process
Now that you have gone through the “before” process, there are a couple of things to do “after”. When applying for rental property loans, make sure you check the qualifications. Keep in mind that every lender will have its own requirements. However, there are things that all lenders require in general. For example, rental property loans require a down payment. Most of them require 20% for a down payment, and some require more or less. Of course, you should figure that out in the “before” process, but you will have to be ready for that in general.
Also, you must make sure that your credit score qualifies you for a loan. Check what the minimum credit score your lender requires.
Another thing to take into consideration is the documentation. Prepare all the paperwork required by your lender. Try to check the required documentation beforehand, so you can take your time preparing it.
Related: How Can You Improve Your Credit Score for Financing Investment Properties?
Finally
Finding the best rental property loans is not that hard. You just have to do what it takes in order to avoid any financial binds in the future. If you are not confident about rental property loans, then there are still plenty of financing strategies for you to go about funding your real estate investments. Make sure to check out Mashvisor’s blogs on how to invest in real estate with little or no capital at all.