Financing of real estate investors
Now is a good time to invest in: single-family, two- to four-unit buildings, condos, and townhomes, as well as multi-family apartment buildings. For real estate investors operating as a business buying residential properties to maintain and benefit from positive cash flow, there are only limited financing options available. Now there are programs available to you. For conventional one- to four-unit residential properties, standard conventional guidelines through Fannie Mae and Freddie Mac limit a borrower to only having four financed properties, including owner-occupied housing.
There is a great solution for you. Even though conventional financing guidelines severely limit who can qualify (and this has only gotten worse in recent years), there has been an increase in portfolio lenders who will make loans on residential investment properties with guidelines similar to apartment financing. commercial. This is great news for those in the business of owning and managing their own portfolio of rental properties. Here are two examples that weren’t available a few months ago.
Like all the options discussed in this article, this financing is for commercial entities and not for individual borrowers (sole proprietors). This is to ensure that lenders do not violate any residential loan laws intended to protect consumers when they purchase and finance owner-occupied homes. Inherently, these warranties must always be owner-occupied and must not be used for business and investment purposes. Understanding this, it is natural that any comprehensive mortgage must cover at least five units. Any less amount would not be considered a business loan.
What is a balloon loan?
A balloon loan is when two or more buildings are encumbered and used as collateral for a loan. In other words, a mortgage can cover two properties or one hundred properties versus two or one hundred loans. Can you imagine owning a small business with fifteen or more projects you own and each with separate loans? Generally, they are like buildings in relatively close proximity, but that is not always required. For the entrepreneur looking to buy and maintain multiple properties for the long term, the balloon loan could be an excellent option. Also, it may actually cost less although there are not many programs available to these small business owners.
Refinancing cash withdrawal without seasonings
The term “seasoning” in the mortgage world means how long a homeowner has owned the specific property. The general guidelines for conventional lenders is that a property must be “seasoned” or owned for at least one year before they will use their learned present value versus acquisition costs. For example, if the purchase price was $ 50,000 and the appraised value is $ 100,000, the maximum loan would be 75% of the purchase price or $ 32,500. With no condiment requirement, the loan amount would be 75% of $ 100,000 or $ 75,000. This allows the investor to buy and hold and make an immediate profit. This allows the investor to have an immediate return similar to that of a flipper, but still owns the property with all the benefits of cash flow. This works on small transactions from $ 75,000 to multi-million dollar commercial apartment buildings.
General loan without cash seasonings
Finally, there is the possibility of using both strategies simultaneously. This offers entrepreneurs access to cash in their real estate portfolio that they would not have access to with any conventional financing program.
These are just two financial options that can help the small business real estate investor succeed when choosing to own to rent or buy and hold their properties to generate long-term cash flow and capital creation.