Monday, 03 April 2017 00:00

Rental Home Financing Continues To Give Investors The Edge

New YearAvailability of rental home financing continues to give real estate investors an edge in the market. A tight mortgage market has been blamed for holding the US property market back from its full potential for years. However, while that hasn’t changed too much for regular home buyers, capital markets appear to continue to be fueling rental home investment activity.

Tight Mortgage Lending Standards Continue In 2017

The latest reports show that despite increased confidence and sales activity in the housing market, mortgage lending remains tight for consumers. The National Association of Realtors’ Economists Outlook and mortgage originator survey shows both concerns over servicing issues and regulatory risk as significant factors in restricting new lending activity . The Urban Institute and Market Watch report that lenders have still been turning down over 1 million loan applications per year, from borrowers who would have been approved in 2001. In fact, Market watch says more people aren’t even bothering to apply for credit.

Optimizing Operations

Having just one loan versus many can make a substantial difference in optimizing ongoing operations. Whether you have 5 or 10 properties, or you are scaling to 100 rental properties the time and labor savings of just one loan to manage is immense. That becomes even more important if you are ever to refinance in the future. Less time wasted on debt servicing means more time to focus on growth and other ways to optimize asset performance, or just to enjoy the rewards.

Hope for Home Buyers?

Mortgage interest rates are still great. Lenders like the collateralization of blanket loans. It can make them more aggressive in how much their loan you, the LTVs, and the rates offered. They may even provide stated income loan options. Consolidating debt into one loan now could help minimize debt service, and create more cash flow for years to come.

Optimizing Equity

Home sales and shopping activity is up according to Wells Fargo and the NAHB. However, while hopes of a strong real estate market in 2017 are high, that may not apply to retail home buyers and home owners. Many expected the Trump card to yield big immediate results, especially in mortgage access. Markets in general have reacted well. However, after failed immigration and healthcare moves, and questions of tax reform on the block next, some may be wondering if much will be accomplished in relaxing underwriting guidelines for consumers, and liability for lenders. Rumors have been floating around that the CFPB is exploring new ways to reduce credit score requirements, or to bump up credit scores with alternative credit. Lenders are also becoming more efficient thanks to technology and are on their way to approving and funding loans faster than ever.

Optimizing Risk

Blanket mortgages don’t just aid in increasing the upside potential. They also help protect from various threats investors face too. Anyone who has been investing long enough, and big enough, knows that along with many sets of mortgage loans comes heightened risk. That may be lost notices of insurance gaps, overlooked payments, or looming maturity or adjustment dates. Having just one loan definitely reduces risk dramatically. Then there is also the risk of owning properties free and clear. Do not underestimate this. When an accident or natural disaster strikes banks have big legal teams and power to get what they are owed from insurance companies. Individual investors do not. If you have properties owned free and clear, and a hurricane, tornado, or fire rolls through, you may not get what you deserve. If you do, if can be years later, and after expending just as much in legal fees. Why not split that risk with a lender, while putting more cash into your working capital accounts to stay afloat, no matter what happens?

However, for now things may get worse for regular buyers, before they get better. Rising interest rates are going to make life in general more expensive for borrowers. That will cramp debt-to-income ratios and how much can be borrowed, while house prices are rising.

Commercial Capital Remains Plentiful

At the same time commercial capital remains plentiful. Accredited investors, funds, and agencies remain bullish on the market, and especially on the performance and long term value of rental housing. Fannie Mae and Freddie Mac have announced they are ready to pull out all the stops to loan billions in 2017. Other funds have set up conduits and are competing for borrowers. They want to loan on real estate, but they prefer the reduced risk of lending to rental property investors, and the efficiency of lending to those with expanding portfolios. This is clearly evidenced not only by increased lender marketing, but the expansion of loan programs, reduced credit thresholds, rising LTVs, and the return of stated income loan programs. Although interest rates may be set to rise, this is an incredibly attractive time to line up credit facilities, to release captive equity, and expand rental property portfolios.

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