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Tuesday, 22 January 2019 06:00

4 Things Every Real Estate Investor Needs to Know About Rental Home Financing

What Every Real Estate Investor Needs to Know About a Blanket Mortgage Rental Home FinancingDo you want a real estate portfolio that contains multiple properties and provides you with a full-time income?

In that case, you need to understand rental home financing. You can’t hope to build that kind of portfolio using the same approach required to buy just one or two homes.

Fortunately, there are only four rental home financing tips you really need to implement in order to get started with building a robust portfolio that can act as your only source of income.


 

4 Rental Home Financing Tips for Real Estate Investors


1. Always Request Owner Financing

If you’re not already requesting owner financing with every deal, that’s the best place to start for improving the value of your portfolio.

In short, owner financing is when the seller agrees to take on the role of the lender. You’ll draw up a promissory note that acts in lieu of a traditional mortgage and then make monthly payments just as you would to a bank.

Not all sellers will be interested in the arrangement, of course, but it’s always worth asking.

Many owners may leap at the opportunity – one they might not have been familiar with – after you explain it to them. While they won’t get the entire sale price of the home all at once, they will enjoy interest payments tagged on to each monthly payment.

As the buyer, this form of rental home financing is advantageous because those interest payments will probably be for a lot less than a traditional lender would ever consider. The seller won’t mind, though, because they’re receiving more than the amount they had expected.

While these arrangements usually conclude with a balloon payment, you should have several years to prepare for it – something those rent checks should help you with.

2. Consider Asset-Based Loans as Your Portfolio Grows

When you first get started, traditional mortgages may seem like the best – maybe the only – version of rental home financing. After all, it’s probably what you used to purchase your primary residence.

However, once your portfolio begins to grow, you should start looking into asset-based loans. As their name suggests, these are mortgages you secure by putting up assets as collateral.

You can use all kinds of assets to do so, too. It just depends on what the lender is willing to accept.

Many real estate investors actually put up their property to qualify for the kinds of loans they need to buy even more. The only stipulation is that you have to actually own the asset free and clear. So, you couldn’t submit a home with a mortgage you were still working to pay off.

The great thing about asset-based loans for real estate investors is how quickly you can qualify for them and receive the funds.

Tired of waiting 30 days or more for a mortgage?

Perhaps you’ve even missed out on an amazing deal or two because you couldn’t get the money you needed in time.

This won’t be a problem with asset-based loans. After your assets are reviewed – which shouldn’t take long for a rental home with an easily-proven market value – you should have your funds within a few days.

3. Grow Your Portfolio by Adding Multiple Properties with Blanket Loans

Many investors are satisfied with only one rental property. They might eventually purchase another, but that’s as far as their ambitions go.

If you’re not that kind of investor, if you want a portfolio that has a dozen or more properties, then you need to consider other forms of rental home financing. Otherwise, it could take decades before you ever meet your goal.

Fortunately, there’s a specific type of mortgage for investors like you.

Technically, a blanket loan is just one mortgage, but it’s designed to cover – hence the name – the financing for multiple homes.

While they’re usually used for buying up to four properties at a time, they can also be modified to cover many more. There’s also no limit to the types of rental homes you want to buy with a blanket loan. You can purchase:

 

  • Single-Family Units
  • Multifamily Units
  • Condos
  • Townhomes

 

Another reason they’re great for the most ambitious investors is because lenders that offer them generally don’t care about your personal finances.

As they are asset-based loans, lenders are far more interested in the potential value of the properties you’re looking to purchase. If they’re going to provide you with enough cashflow to cover your monthly mortgage payments, you shouldn’t have any problems qualifying for a blanket loan.

Finally, one other reason blanket loans have become so popular as a form of rental home financing is because you can use them for refinancing, as well.

So, if you didn’t take advantage of this type of mortgage while you were building up your portfolio, it’s not too late. You can use a blanket mortgage to consolidate as many loans as you want. As long as you have a partial release clause attached to it, you can use a blanket mortgage to pull out the equity without worrying about not being able to sell off properties individually later on.

4. Make the Switch to Nontraditional Lenders Early

It will be much easier to take advantage of these rental home financing tips if you work with nontraditional lenders. In fact, it’s almost the only way you’ll be able to apply for asset-based loans.

As most traditional lenders won’t consider any borrower with more than four loans, it’s also the only way you’ll secure a blanket loan.

If you’re nervous about the prospect of borrowing from a nonbank, don’t be.

These days, nonbanks account for 6 of the 10 biggest lenders by volume in the entire country. Their popularity is, in part, a direct reflection of how many investors want more options like the ones listed above.

Work with Lenders Who Understand Rental Home Financing

We launched Rental Home Financing in response to this growing demand. Specifically, we started this company because we knew how many rental home investors were struggling when trying to work with traditional lenders.

If you’d like to expand your portfolio with a blanket loan, we’re here to help. Take a moment to fill out our loan application and we’ll get back to you ASAP, so you can purchase the properties your portfolio needs.

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Rental Home Financing
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Rental Home Financing originates commercial blanket loans with a commercial purpose and is not currently authorized to make such loans in all areas of the United States. Specific circumstances will determine whether we have the ability approve/close portfolio rental home loans in your state(s). 

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