Investment Property Financing
Investment property financing from hard money lenders is faster and easier to obtain as they primarily work with real estate investors and better understand their needs. Real estate investors prefer financing investment property with hard money lenders as they require less paperwork and provide fast loan approvals and funding, especially when compared to conventional lenders such as banks or credit unions. Hard money investment property lenders have few requirements as they are asset-based lenders who are primarily concerned with the value of the property and the borrower’s equity in that property.
Investment Property Loan Interest Rates
Investment property loan rates will vary based on the specifics of the loan scenario such as length of loan, loan to value (LTV), condition and location of property and overall perceived risk of the investment. Hard money investment property loan interest rates are typically higher than interest rates available from a conventional lender (if the conventional lender is able to provide this type of loan). Many conventional lenders solely focus on owner occupied home mortgages and do not provide financing for investment property loans.
Hard money investment property loan rates in California are likely to be lower than in other states. The large amount of California hard money lenders creates competition that keeps California investment property loan interest rates lower than other regions.
Investment Property Loan Requirements
Hard money lenders generally have very few investment property loan requirements compared to institutional lenders such as banks and credit unions. The following are some the most common investment property loan requirements:
- Down payment / Equity – The main requirement for an investment property loan is the borrower having a significant down payment (at least 25-30%) or sufficient equity in the property if the loan will be a refinance.
- Financial Strength of the Borrower – The borrower must demonstrate they have the necessary funds for various costs such as monthly loan payments, taxes, insurance and other holding costs for the investment property.
- Rental Income – The investment property lender will want to ensure that the property’s rental income will cover or come close to covering the monthly financial obligations of the investment property.
- Exit Strategy – Hard money investment property loans are typically short-term and available for up to 3-4 years. The investment property lender will want to know the real estate investor’s plan for the property and whether they intend to sell, refinance or pay off the investment property with funds from other sources.
Quick Close with a Hard Money Investment Property Loan
Reputable hard money lenders are able to fund an investment property loan request in as few 3-5 days if the borrower needs the funds right away to close escrow. In many cases a real estate investor will choose to use hard money financing to quickly acquire an investment property and then begin looking for a longer-term, lower cost financing option. This acquisition strategy is especially beneficial during a real estate market when many buyers are competing for few properties.
Sellers are often more likely to accept an offer from a buyer with hard money financing than a buyer with conventional financing. Experienced sellers understand that hard money lenders are able to fund much faster and have fewer issues during escrow than conventional lenders. A buyer with hard money financing can even offer a shorter escrow period to entice an anxious seller to accept their offer. In some cases, a seller may even accept a lower offer because it comes with a shorter escrow period and hard money financing.
Rental Property Loans – Rental Property Financing
Buying a rental property is one of the most popular forms of real estate investment. Real Estate investors purchase a rental property that can be rented to a tenant for more than the monthly liabilities (principal, interest, taxes, insurance). Ideally the real estate investor will achieve positive cash flow from the beginning, but this isn’t always feasible. The real estate investor will also depend on the property appreciating and take advantage of tax benefits in order to maximize their profits from purchase of the rental property.
Hard Money Lenders for Rental Properties
Hard money loans for rental property are often used in situations where the borrower needs to act quickly to secure the property. The process to obtain a rental property loan from a conventional lender can take months and involve mountains of paperwork. Rental property loans from hard money lenders can be approved same-day and funding can be completed within days if needed. Once the rental property hard money loan has been used to secure the property, the owner can begin looking into longer term loan options if needed.
Some borrowers will use hard money lenders for rental properties after being denied by conventional lenders such as banks and credit unions. Conventional lenders may deny a borrower’s loan request for the various reasons including having too many existing conventional loans, poor credit or other negative issues on their recent record (bankruptcy, foreclosure, short sale, etc.). When analyzing a rental property loan, hard money lenders focus primarily on the value of the property and the borrower’s equity (down payment) in the property. The focus on value and equity allows the hard money lender to overlook many issues which would be red flags for banks.
Rental Property Financing Requirements for Hard Money Lenders
Rental property financing from a hard money lender generally requires a down payment of at least 25% from the real estate investor. 100% financing is not available. Hard money loans for rental property are typically easy to obtain as long as the real estate investor has the necessary down payment available as well as sufficient cash or income to cover the property’s holding costs. Rental property hard money lenders are able to overlook poor credit scores and items on a borrower’s record such as foreclosures, bankruptcies, short sales, loan modifications and other issues that would prevent other lenders from providing investment loans for rental property.
If the real estate investor has sufficient equity in another property but does not have enough cash for a down payment, the real estate investor may be able to take out a cash out refinance loan in order to raise the funds for the down payment on the new rental property purchase. The lender will also want to see that the investor has enough cash reserves available to deal with potential tenant vacancies, repairs and any other unforeseen issues.
Rental property loans from hard money lenders are not typically long-term loans. The longest terms available are usually 3-4 years terms. Hard money loans for rental properties are often amortized over 30 years but a balloon payment will be due after the agreed upon term. The lender will want to know the real estate investor’s intended exit strategy upfront to understand how the borrower will repay the rental property loan. The exit strategy may involve refinancing the rental property loan into a long-term conventional loan or selling the property.
Real Estate Investment Loans
North Coast Financial provides a wide variety of real estate investment loans to real estate investors in California. The most popular real estate investment loans besides investment property purchase loans include investment property refinance loans and investment property rehab loans. View a complete list of the real estate investment loans offered on our Hard Money Loans for Real Estate page.
Investment Property Refinance Loans
North Coast Financial is able to help real estate investors refinance investment property in California. Investment property refinance loans are common for real estate investors who currently own investment property with sufficient equity. North Coast Financial provides both refinance loans for investment property as well as cash out refinance investment property loans. A simple refinance loan provides the borrower with a lower interest rate or a longer loan term if the existing loan will soon become due. A cash out refinance loan allows the borrower to quickly pull equity from the existing property in order to reinvest in another property.
After multiple years of a hot real estate market, real estate investors discover a large amount of equity in their rental properties. Cash out refinance rental property loans are a popular way access the equity a property in order to invest the capital in other projects.
Please see our Cash Out & Refinance Loans page for more information.
Investment Property Rehab Loans
Investment property rehab loans (also known as fix and flip loans or rehab loans) are available for real estate investors who wish to purchase a property, quickly make any needed repairs and improvements and then sell the property for a profit. Rehabs loans for investment property give the real estate investor a short-term loan with the needed funds to purchase the property and in some situations also provide a portion of the funds for the rehab costs. Rehab loans for investors are often in high demand during a strong real estate market as many real estate investors look to take advantage of appreciating real estate prices.
Fix and hold loans are also available to investors who wish to purchase a property in need of rehab, make improvements and then hold the property as a rental. An investment property rehab loan would typically have a 12 month loan term while a fix and hold loan would have a loan term closer to 3 years.
Please see our Fix and Flip / Rehab Loans page for more information.
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