Have you been considering buying an investment property, but aren’t yet ready to pull the trigger? There are so many factors to consider, and we know it can be a little daunting. Maybe you’re wondering what type of property will be the most lucrative, or maybe it’s the financing for the project that has you taking a pause.
Whatever is holding you back from making a confident move in the direction of your goals, we want to help. Many would-be investors are held back by the same questions, so we’ve got the answers to some of the most common here.
How do I figure out how much I can afford for a rental property?
Determining affordability is a crucial first step in financing a rental property. Prospective investors should assess their financial situation, including available savings, income, expenses, debt obligations, and credit score. You can use online mortgage calculators to estimate monthly mortgage payments based on different loan terms, interest rates, and down payment amounts, but this isn’t the most reliable way to get real numbers. The best thing to do is talk with one of our loan officers to get an idea of what you qualify to borrow.
What is the most lucrative type of rental property?
It’s not as simple as telling you the one type of property you should buy. This is because the most lucrative type of rental property depends on multiple factors, including location, market conditions, rental demand, property type, and investor goals.
These are some of the reasons people choose varying types of rental properties:
- Single-Family Homes: Single-family homes are popular rental properties due to their ease of management, broad tenant appeal, and potential for stable rental income. You can purchase single-family homes in desirable neighborhoods and rent them out to families or individuals seeking a home-like environment. Ideally, with great tenants, this is an extremely low maintenance source of passive income.
- Multi-Family Properties: Multi-family properties, such as duplexes, triplexes, and apartment buildings, offer multiple rental units within a single property. These properties can provide higher rental income and economies of scale but may require more management and maintenance.
- Vacation Rentals: Vacation rentals, such as condos, cabins, and beach houses, cater to short-term tenants seeking temporary accommodations for vacations or business trips. While vacation rentals can yield higher rental income, they may also involve higher operating expenses and seasonal fluctuations in demand.
- Commercial Properties: Commercial properties, including retail spaces, office buildings, and industrial properties, can provide stable long-term leases and higher rental rates but may require larger upfront investments and specialized knowledge of commercial real estate markets.
What type of financing will work for a rental property?
There are several financing options available to you for your rental property, depending on your needs. We have years of experience in helping our clients find a strategic solution that helps them reach their goals in real estate.
These are some of your options:
- Conventional Loans: Conventional loans, backed by private lenders and not government agencies, typically require a minimum down payment of 20% for investment properties. These loans offer competitive interest rates and terms but may have stricter qualification criteria.
- Bank Statement Loans: If you don’t expect to be able to qualify based on your W-2 income, a bank statement loan can provide a different way to verify your eligibility. This is perfect for self-employed borrowers!
- Cash Flow Mortgages: Designed specifically for investors buying a rental property, a cash flow mortgage allows you to qualify based on the income potential of the property rather than your income. We will assess the predicted rental income from the property you are hoping to purchase and look to see if that will cover your mortgage payment.
How can I qualify for an investor loan?
The type of loan you are applying for will dictate what it takes to qualify. For some loans, you will need to show similar qualifications to what you did when buying a personal home, including your employment and income history, your credit score, the DTI, and your overall financial strength. Other types of loans focus more on the income potential of the rental property itself and not interested in your personal income.
If you’re looking to improve your chances of getting financing for a rental property, start here:
- Maintain a good credit score by paying bills on time, reducing debt, and monitoring credit reports for errors.
- Save for a larger down payment to reduce the loan-to-value ratio and demonstrate financial stability.
- Show proof of stable income and employment through pay stubs, tax returns, and employment verification.
- Keep debt levels low and minimize new debt obligations before applying for financing.
Next, talk with the experts about your options. Interested in learning more about applying for a cash flow inventor mortgage or talking with a loan officer? Contact us any time to take the next step toward your goals.