If you’re looking to invest in a property, or multiple properties, you have several loan options. But choosing the right type of loan can be confusing, and making the wrong choice can affect the fate of your investment.
While the first loan type many think of is a conventional mortgage loan, this comes with many drawbacks, which includes strict income and credit score requirements, especially for multiple properties. Investment property loans need to involve a fast turnaround and flexibility for the investor.
We’ll explore the types of loans possible for investment properties and how a private money loan may be the most suitable choice.
What type of loan is best for an investment property?
The most familiar ways to get an investment property loan are with a conventional mortgage from a bank or mortgage broker, or a private money loan. Many people also think foregoing a lender altogether and looking for an equity partner or joint venture partner is the way to go.
What’s your loan scenario?
But conventional mortgages and partnerships each come with complications that you won’t find with private money loans.
You may know all about conventional mortgages if you own a home. Conventional mortgages are most common, but they come with strict requirements and long approval times. Following the regulations led by Fannie Mae or Freddie Mac, you need to have a good credit score and prove you can afford your existing mortgage and monthly mortgage payments, based on your income, assets, and debt.
As a result, many people are unable to take this route for a loan due to their credit score or inability to prove traditional and consistent forms of income. Or, the process can take far too long and you need a loan fast. Investment deals are all about timing.
Investment property investors looking for partnerships often end up teaming with people who want a 50/50 partnership or joint venture. Even if partners ask for 25% of the profit, this ends up being much more expensive than what a private money lender can offer.
Private money loans offer speed and flexibility
The greatest benefits of private money loans are the quick turnaround and common-sense approach to lending.
If the loan makes sense to the lender, they will provide it, rather than having to deny it because it doesn’t fit their strict requirements. These lenders also allow flexibility to those with unique or unusual situations that aren’t as straightforward as what traditional loans allow.
Private money loans are ideal for:
- Real estate investors needing a quick loan
- Large investments such as multi-family properties
- Those seeking to fix and flip properties
- Financing multiple properties simply
- Construction loans
How private money loans make it easier to fund multiple projects
Even though Fannie Mae rolled back the rule that real estate investors cannot finance more than four properties at once, few banks allow this today even though it was changed in 2009. Borrowers are technically allowed to simultaneously finance 10 properties now, but if you have found this not to be the case, you’re not alone.
Banks often will turn you away because it’s hard work to finance and service a loan for that many properties. For one loan, homeowners are required to submit W-2 tax forms and pay stubs. For real estate investors looking to fund multiple properties, complete tax returns, complete Real Estate Owned (REO) schedules, and many other details are required for every single property.
In addition to reviewing all of this paperwork, the 5-10 Properties program has strict criteria for down payments, credit scores, and more, with very limited exceptions.
Private money lenders don’t need to rely on your credit score because they are interested in the value of the property you want to purchase. Multiple properties aren’t an issue as long as the deals make sense. For private money lenders, it’s all about the deal.
Factors to consider when choosing financing
When deciding how to finance each investment property, one large consideration is how much of a down payment you can afford.
With conventional loans, a typical down payment is up to 20% of the home’s purchase price, but investment properties can be up to 30% of the purchase price. Future rent income isn’t included in debt-to-income ratios for traditional mortgages, so many lenders would expect you to have at least six months of payment set aside to cover all of your costs.
A private money, or “fix-and-flip” loan, is focused on the property’s profitability above all else. The biggest factor to consider with private money loans is interest rates. They are meant to be paid back quickly, so interest rates are higher than conventional loans. However, if your goal is to flip the house, part of your objective will be to put the property back on the market as quickly as possible.
Private money lenders can also offer:
- Closing in as fast as seven days
- Loan amounts from $50,000 to $20 million
- Deal-specific Loan-to-Value ratios of up to 70%
- Deal-specific Loan-to-Cost ratios up to 80%
As previously mentioned, your credit score also affects what you qualify for and how much money you would receive from a traditional lender. If you don’t have a high enough score, a conventional loan won’t be an option, while a private money lender isn’t focused on your score, just the assets.
Relationships matter to hard money lenders
Building a long-term relationship with a private money lender benefits both parties. As lenders get more comfortable with a borrower and do more investment-type loans, the lender will be inclined to offer more to the borrower as there is a relationship and confidence on both ends.
If a hard money loan is right for you
Are you interested in moving forward with a private money loan? Marquee Funding Group specializes in unusual or challenging real estate transactions that conventional lenders can’t allow. If your situation makes sense, we will finance your loan quickly and simply.
Our services allow for much greater flexibility and turnaround than traditional lenders, including:
- Same-day approvals
- Quick document review
- Common-sense underwriting
- Loans for single family, multi-family, commercial, and industrial properties, and land
Our team of experts is a call or email away. Contact us to learn more about the process and have us take a look at your unique situation. We fund loans others won’t.
If you already know what you need and are ready to get moving, complete this form to submit your loan request, and we will contact you. If you want a simple solution for financing your investment properties, look no further — Marquee makes complex deals simple.
Photo by Clayton Cardinalli on Unsplash