Buying a rental property is a fantastic way to get additional income. However, it doesn’t come risk-free.
Every investment comes with risks, weighing the pros and cons of buying and managing rental properties one will see that if the market is good and the investor is skilled—rental properties are a great way to attain wealth.
Of course, before diving head first into becoming a land lord you should have enough information to decide if the income stream is a good fit for you and you need to understand the choices when it comes to financing.
Financing For Rental Properties
The first thing an investor needs to figure out is how they will obtain financing for rental properties. It is not as simple as getting approved for the mortgage on your primary residence. There is a reason lenders are skeptical of financing rental properties. Lenders know that if a borrower runs into financial difficulties they are much more likely to walk away from an investment property than their home.
If a borrower is determined to obtain financing through a conventional mortgage they must prepare themselves to put down a minimum of 20%-25% of the purchase price. Fannie Mae requires a minimum of 15% down, but the majority of lenders require even more. A borrower will also need a strong credit score and monthly income. Along with all this—borrowers will also be required to hold higher cash reserves. Reserves are liquid assets that are available after paying the down payment. Examples of these reserves could be: the cash value of insurance policies, checking and savings accounts and investments in any CD’s or stocks and bonds. Most banks will not approve borrowers if they have more than four mortgages. Also, expect when working with a traditional lending institution on rental property mortgages, to double the required documentation and paperwork as you did for your mortgage on your primary residence.
If you don’t have a 25% down payment, don’t have perfect credit, own four or more rental properties or just don’t want to deal with the paperwork from the bank there is another option.
Arizona Hard Money Lenders will lend on rental properties. Unlike banks, they are not required to follow the strict federal guidelines. A borrower does not need perfect credit. The underwriting process from an Arizona Hard Money Lender is minimal in comparison with the banks. Because Arizona Hard Money Lenders are individuals that make their own terms they are able to approve you quickly. Arizona Hard Money Lenders do not need liquid assets because they back loans using the borrowers hard assets— property. Not only can a borrower be approved within 48 hours; they are able to receive their money in two weeks or less. Arizona Hard Money Lenders are flexible and able to negotiate deals because there are no set lending requirements. An investor will likely have lower closing costs associated with the loan, as well. If you are a seasoned real estate investor, none of this is news to you. However, if you are just sticking your toe in the rental waters to see what it feels like—make sure you research all your options.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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