Is equity-based financing the solution for your non-performing rental property?
It’s not unusual for experienced real estate investors to find they own a non-performing rental property that may still have the potential to generate significant returns—but is held back by a lack of funds.
If you’re in a similar situation, it’s important to understand the benefits of equity-based financing and how it can help you unlock the value of your non-performing rental property.
In this article, we’ll discuss the different financing options available to you, the advantages and disadvantages of each, how to determine if equity-based financing is the right choice for your investment property, and why Marquee Funding Group is the best choice.
What’s your loan scenario?
Understanding non-performing rental properties
There can be various reasons why one of your investment properties is not generating the expected returns. For example, high vacancy rates in your area, low rental income medians, costly repairs needed, etc.
These types of properties can be a significant burden on your finances and can quickly eat into your profits.
However, it’s important to note that non-performing rental properties also present an amazing opportunity for investors willing to work to turn them around.
How extra financing can help a non-performing investment property
Additional financing can be a lifesaver for non-performing investment properties. How can it help?
- Renovations and repairs: Extra financing can be used to make necessary repairs and renovations to the property—attracting new tenants and increasing rental income.
- Marketing and advertising: Additional funds can be used to promote the property to potential tenants—including online ads, social media campaigns, and signage.
- Lowering interest rates: If you have an adjustable-rate mortgage, additional financing can be used to refinance the loan and secure a lower interest rate.
- Paying off debt: If the property has existing debt, additional financing can be used to pay off the debt sooner and improve cash flow.
- Hiring property management: Extra financing can be used to hire a property management group or company to help manage the property, thereby freeing up time for the owner and ensuring the property is managed properly.
Overall, additional financing can help turn a non-performing investment property into a profitable one.
The problem with HELOCs
One financing option that many investors consider is a home equity line of credit (HELOC).
HELOCs are types of loans that enable you to borrow against the equity you’ve earned from your home. While a HELOC may seem like an attractive option, it does have several drawbacks.
First, HELOCs require a good credit score, which can be difficult to maintain if you’re already struggling with a non-performing rental property.
Second, HELOCs often have higher interest rates and fees than most conventional loans, which can add up quickly and eat into your profits.
Finally, HELOCs may not have the flexibility to repay the loan. HELOCs often have a fixed payment schedule, which can be difficult if your rental property is not generating the expected returns.
What is a hard money lender?
Another financing option that investors often consider for non-performing rental properties is a hard money lender.
Hard money lenders can be individual private lenders or groups of lenders who provide short-term loans for real estate investments. Private lenders often feature greater flexibility than traditional lenders and can provide financing even if you have a low credit score or are self-employed.
However, hard money loans often have higher interest rates and fees and require you to put up collateral to secure the loan. But there are several advantages and benefits to using hard money lenders that can make it worthwhile.
Benefits of a cash-out refinance loan from a hard money lender
A cash-out refinance is one solution to access financing from a hard money lender like Marquee Funding Group.
A cash-out refinance allows you to refinance your existing mortgage for a higher amount than you currently owe and receive the difference in cash. This option can provide you with the extra funds you need to invest in your non-performing rental property.
The benefits of cash-out refinance from a hard money lender include the following.
Quick approval process
Hard money lenders often have a quick approval process, which can help you quickly access the funds you need and get that rental property back on its feet.
Hard money lenders can feature more flexible terms than traditional lenders and can provide financing even if you have credit score problems or are self-employed—a significant advantage if you’re struggling with a non-performing rental property.
Risks of cash-out refinance with a hard money lender
While cash-out refinance from a hard money lender like Marquee Funding Group can be a good financing option for non-performing rental properties, it’s important to know the risks involved. Some of the risks of cash-out refinance with a hard money lender include the following.
Hard money loans often have high-interest rates, which can add up quickly and eat into your profits.
Hard money loans are typically short-term loans typically around 1-3 years. This aspect can make things difficult if your rental property is not generating the expected returns.
Hard money lenders require you to put up collateral to secure the loan, which can be risky if you cannot repay the loan on time.
How can a second mortgage access home equity?
Another financing option for non-performing rental properties is a second mortgage.
A second mortgage is a loan that allows you to borrow new funds against the equity in your home. Second mortgages are often used to fund home improvements or other investments. The benefits of a second mortgage include the following:
Longer repayment period
Second mortgages often have longer repayment periods than other financing options, making managing your finances easier.
No need to refinance
With a second mortgage, you do not need to refinance your existing mortgage, which can save you time and money.
How does a second mortgage work?
To access a second mortgage, you must have already put equity in your home or it has risen significantly in value due to market conditions.
Equity is what the mortgage industry calls the difference between what you still might owe on your mortgage and the assessed value of your home.
Marquee Funding Group could have your solution
In conclusion, equity-based financing can be a good option for investors who are looking to unlock the value of their non-performing rental properties.
Cash-out refinances or a second mortgage from a hard money lender can provide the extra funds you need to invest in your property.
However, it’s important to discuss the risks involved with both financing options and to choose the one that best suits your needs and financial situation.
If you’re interested in equity-based financing for your non-performing rental property, Marquee Funding Group offers a wide range of loan options, including purchase money, rate-and-term refinance, and cash-out refinance.
Our loans are available for both owner-occupied and non-owner-occupied properties, and we offer loan amounts from $50,000 to $20 million.
Photo by Curtis Adams