Looking to secure financing for your rental property? Learn about loan types and how to position yourself as the best applicant possible
When it comes to real estate investing, understanding how to finance a deal is just as important as finding the right property. Unfortunately, many independent landlords struggle to secure real estate financing at competitive rates in today’s market — simply because they aren’t aware of the different avenues available.
The truth is, there’s no one-size-fits-all approach to financing investment properties. “The best thing you can do as an investor is educate yourself on the different types of financing,” advised Torri Shack, Head Of Mortgage Solutions at Azibo. “That way, when you get to the table you will know what you’re talking about and what your options are.”
In this blog post, we’ll break down different financing options for investment properties, what they’re used for, and how you can position yourself as the best loan applicant possible.
As a real estate investor, it’s important to carefully consider which path makes the most sense for your specific financial situation. First, let’s start with loans for buying or refinancing an investment property. Here are some of the most common types:
Note that while you can apply for certain loans, you can’t always control the specifics around the terms (e.g., whether it’s a 15- or 30-year mortgage) unless you’re willing to sacrifice your ideal interest rate. “The loans you’re offered are based on your net worth, your credit score, the property itself, and many other factors,” explained Torri. “Your lender will provide a few options for rates and terms based on your application, then you choose which of those options works best for you.”
Working capital financing may be ideal for investors who need money to cover day-to-day operational expenses, like completing home renovations or major repairs. However, it’s important to note that the vast majority of short-term real estate loans get rejected by banks — so investors often must explore alternative routes, such as hard money lenders.
Below are six working capital financing options to consider:
1. Streamline financing with Azibo Rent Advance
Designed to secure landlords fast funding, Azibo Rent Advance allows Azibo landlord customers to get up to 60% of their annual rental income now and pay it back in 12 equal monthly installments. (Currently only available to eligible customers.)
2. Get affordable home improvement loans with LoanGlide
Azibo partnered with LoanGlide to give customers access to fast, flexible short-term home improvement loans that range from $1,000 to $100,000. LoanGlide offers simplified online applications, the ability to get funding in as fast as 24 hours, and affordable payment plans with variable interest rates and terms to meet every need.
3. Take out a second mortgage for an existing property
Second mortgages allow real estate investors to borrow against the equity of another property in their portfolio. Landlords can then use the cash for renovations, home improvements, or any way they see fit.
4. Take out a line of credit on your primary residence
A home equity loan lets real estate investors borrow against the available equity in their primary residence and use the house as collateral for a line of credit.
5. Consider alternative lenders
Looking beyond traditional institutions like banks and credit unions, you could seek out funding from alternative lenders, or “hard money” lenders, which are typically online-based, private companies. However, it’s important to thoroughly vet alternative lenders since they can be predatory and may require extraordinarily high interest rates.
6. Use your credit card
Finally, some landlords may consider charging home improvement costs to their credit card. This can be another quick solution — however, it’s essential to understand your credit limit and utilization as well as confirm you can pay back charges on time and in full.
Wondering what you can do to make a great first impression on potential lenders? Here are three tips for inspiring confidence in your application:
No one loves paperwork, but it’s an unavoidable — and crucial — part of real estate financing. While application requirements vary by lender, investors should be prepared to provide the following property information:
Beyond that, you’ll also need to submit basic information about yourself and your financials. That includes your credit score, income statements, cash flow statements, tax returns, and LLC details (if applicable).
Applying for a real estate loan may feel overwhelming, but staying organized and proactively tracking down paperwork ahead of the time of application can help make the process as smooth as possible — and leave a strong impression on potential lenders.
Looking to simplify your next rental property purchase, refinance, or home improvement project?
Azibo’s commercial and investment lending solutions give landlords access to a network of top providers for a wide range of acquisition, refinancing, and bridge loans for single-family, multi-family, and portfolios of rentals.
Whether you’re purchasing a new rental property or refinancing your existing portfolio, Azibo’s streamlined application process will help landlords and real estate investors save time, get competitive rates, and find a lender that best suits their needs.
Starting reaping the benefits of stress-free real estate financing. Apply for your next rental property loan today.
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