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What Every Investor Needs to Know about Loans for Rental Property

What Every Investor Needs to Know about Loans for Rental Property

what

every

real estate

investor

needs

to

know

about

loans

for

rental

property

so whether you own

rental

property

now or you have any plans in your career to own

rental

property

you need to

know

the wisdom i'm going to share with you on this video and that's because

every

rental

property

needs

to have a loan against it never been a fan of owning

rental

property

free and clear in fact i have a video proving why that's such a bad idea i go so far on that video as to say that it's financially irresponsible to not have a loan against

rental

property

so long as it's a long term ideally low fixed rate interest loan so where do these

loans

come from where do you get a 30-year fixed rate with a reasonable interest rate loan against

rental

property

if you're an

investor

well that's

what

this video is all about and i'm going to focus on residential real estate that single family homes duplexes triplexes up to four units uh vacation

rental

s in this video these loan options you're going to learn about and the little tips and tricks along the way apply to residential not commercial so let's dive in there are four main sources or types of lenders that provide the best

loans

for

rental

property

for

investor

s we'll start with conventional and then we'll head all the way down to portfolio and i'm going to share with you the pros and cons of each where they fit in for which

investor

s so that you can find the best fit for your next

rental

...
what every investor needs to know about loans for rental property

property

loan you may be familiar with a conventional mortgage these are

loans

that are sold on the secondary mortgage market to fannie mae freddie mac just about

every

bank and mortgage company that exists originates conventional

loans

this is the majority of mortgages in america this is

what

they are but these are primarily for owner occupants people living in the home as their primary residents but

what

about

investor

s can

investor

s get conventional

loans

well yes they can because fannie and freddie will buy non-owner occupied

loans

if they're single family up to four plex but it comes with all the strings attached such as having to verify the income and have a perfect loan application and so for many

investor

s this is difficult to pull off but i'm going to tell you one more part to this the most important parts of this conventional has a gigantic weakness and that weakness is that they will not allow you to own

rental

property

in an llc you must buy the

property

in your personal name and so

what

some

investor

s have done over the years as they say well that's not a big problem phil i'll buy it in my personal name and then i'll quit claim it into my llc well let me tell you a couple of major problems with that otherwise brilliant strategy number one when you move the

property

into the llc you voided your title policy so if you do have a title problem down the road could be a huge issue because your policy has just been voided and you just paid some good...
what every investor needs to know about loans for rental property
money for it when you bought that that

property

the next problem is that in many states it started with florida but many states have caught on

what

they now do is they charge a recording tax at the same amount as the mortgage so i

know

on a deal that i did i did this this conventional loan because it was a second home loan because i was doing a vacation

rental

it was my first one many many years ago and when i moved into an llc i was charged recording taxes for recording that quick claim deed that was an extra five thousand dollars so you not only have a problem with title policy you have a problem with having to potentially pay more recording fees and then the last problem is the actual insurance because remember you're buying your own

property

subject to if you will if you transfer into an llc after closing and so it sometimes can be a real hassle with your insurance company your insurance rates go up so i am not a fan of

investor

s getting a conventional loan on their

rental

property

and here's why there's an option that gives you the same benefits of conventional and

what

are those benefits real quick when it comes to interest rate they have the lowest interest rates okay now they do have the highest amount of i'm going to call it you

know

requirements um they have the highest requirements but they have the lowest interest rate but how can you have your cake and eat it too if you do look good on paper right if you can get a conventional loan well that's...
what every investor needs to know about loans for rental property
where we come to local banks and credit unions they're not all going to do this you're going to have to make some phone calls but you're going to find that certain local banks and credit unions will have the same underwriting guidelines as a conventional loan you'll get a very similar if not the same interest rate as a conventional loan the requirements are going to be the same but you get to use your llc as the owner so local banks are a great option for

rental

property

owners a lot of them do this now it changes consistently so

what

one local bank would had an appetite for uh at one point in time they no longer do it ebbs and flows so i don't have a list for you of local banks or credit unions to work with here on this video because it's always changing but this is the place to go if you look great on paper as a

rental

property

owner this is the one to go to for your loan get the great you get the benefits of conventional while you get to own it in an llc but

what

if you don't look perfect on paper like most real estate

investor

s right you don't have that huge flowing w-2 income maybe you do have decent credit but you're not able to prove the income the way that a conventional or local bank wants to see it then where do you go non-qm lenders non-qm

what

's qm stand for qualified mortgage you can google this phrase non-qm lenders and you'll see an entire list of them so non-qm lenders is the place that so many

investor

s operate in...
because here's

what

happens you have slightly lower requirements the requirements are not as bad i'm going to give you an example maybe you can show a lot of income from your bank statements but not from your tax returns because you're able to deduct a lot of things and a lot of projects you've been working on okay this is a perfect place non-qm non-qm can even go all the way down to almost stated income level stuff so non-qm is a great zone for you to operate in yes you can own the

property

in your llc yes they'll do 30-year fixed-rate

loans

now the interest rates a little bit higher okay so

what

's going to happen here if the prevailing rate for a conventional or local bank loan is about a point we call it a point in the mortgage world uh percentage to one and a half percent more than the prevailing rate if that's

what

these are this is going to be like another not quite a point but almost a point more than this zone right here okay that there's a rate bump that's the phrase in the mortgage world when you go okay obviously from if you lived in the house to now you're a non-owner-occupied loan and that's where you get this bump off the prevailing rate and then this is another bump off of this rate okay so now you get into this zone and you've got a slightly higher interest rate but you've got more flexible requirements here's

what

you need to

know

about non-qm lenders you don't go directly to them you have to go...
through a mortgage broker these are wholesale lenders they work through mortgage brokers rather than having a bunch of staff in-house to handle loan origination but here's the problem mortgage brokers have a high level of flexibility on

what

they work on and who they work with and a lot of mortgage brokers that have any talent that are skilled they discover that they can make just as much money on non-qm

loans

as they can on and conventional is easier much easier for them so one of the main problems

investor

s run into with non-qm

loans

is finding mortgage brokers who are willing to work with them and they have experience with non-qm lenders because non-qm lenders do ask for a lot of documentation it typically is not just the borrower but it might be the

property

itself and so

what

happens is you've got to treat the mortgage broker kindly because they could just drop you and it's very common on a project i did it recently just as a test on this it was funny some of the mortgage brokers that i've

know

n for years and years they're like no phil i'm not going to mess with non-qm it's such a pain in the butt so they do work harder for the same pay so you you do have to build a relationship with a mortgage broker that is willing to do non-qm and has experience with it because again with the lack of requirements if you will comes some other hassles and so that's the secret to non-qm and one of the things i love about non-qm is the range to which...
they'll work um i did a deal recently where they were willing to do a 40 a 40-year loan first 10 years for interest only then after that it was 30-year amortized so non-qm there's some really cool stuff you can do in there and as far as uh the names of some of the lenders i will tell you this if you talk to a mortgage broker mention names like angel oak like um like citadel um like new res um those are those are the big ones okay and you can google it again google this phrase and look up some names as well you want to talk to mortgage brokers and interview them have you done a deal with angel oak recently or another non-qm lender and how did it go

what

were the terms

what

are the details so when you work with a mortgage broker you've got that double uh challenge you got to find one that works with these groups and also likes to work with these groups all right so that's non-qm many

investor

s are gonna are gonna be in this zone right here but

what

if

what

if you don't look good at all on paper right you can't even show bank statement income sure there are like i said there's some non there's some state income here but non-qm lenders are still looking at you as the borrower but

what

if your

property

is awesome

what

if it's cash flowing well

what

if it's a very productive

rental

property

but you on paper somehow look terrible you need a lender that's focused not on you but it's focused on the

property

and you're not looking for...
a hard money lender a short-term lender you're looking for a long-term fixed-rate

rental

property

lender that's focused on the

property

where do you go introducing portfolio lenders these lenders have come about in about the last three to four years and not only do they provide hard money

loans

they also provide permanent long-term 30-year fixed rate

loans

on

rental

property

and these portfolio lenders focus on the

property

far more than you as the borrower in fact some of them all they look up is your credit to make sure you're at least 640 and then from there all they focus on is the

property

i did one as an experiment with a portfolio lender and i did it on a vacation

rental

and it they focused completely on the income they had they asked me to get statements from airbnb and vrbo and they could care less about me personally even though i look perfect on paper i again i wanted to do a test for

every

body in my group and so portfolio lenders they're amazing for

investor

s right now okay

what

's the drawback the drawback is the interest rates a little bit higher so again going down this scale if this is uh plus one to plus 1.5 of the prevailing rate that you see listed for a typical home mortgage this is about another point higher and then this is not quite but i'll just do round numbers about a point higher usually so uh right now in today's numbers you

know

these are going to be somewhere in the fours these are somewhere in the fives these are...
probably in the super low sixes in the upper fives low sixes so if we're talking about a

property

that cash flows very well but you don't look good on paper you go here but there are other reasons why you would go portfolio another example is going to be if you have a lot of

rental

property

loans

at some point if you have too many they won't they won't lend on you non-qm might be a little bit more flexible but even then they might stop let's say if you have 12

loans

whereas these guys could care less in fact these guys like the bigger portfolios in fact they love being able to lend on 20 30 50 80 properties they love that stuff portfolio lenders have been amazing now the whereas it's difficult to recommend a mortgage broker to you because i don't want you to you

know

call one of these people and then you

know

somebody just ruin it for

every

body very difficult because this is a moving target i'm not a fan of this anyways i can recommend portfolio lender finance of america commercial i've got a great contact there named jerry collins in fact in the comments section i've got a link that'll take you to his contact information if you want to reach out to him let him

know

that i recommended you he'll take really good care of you now finance of american commercial is one of many of these portfolio lenders that have come out another one another major one would be core vest another be vizio lending lima one lending one i've got links...
to those as well but this group right here has been a huge benefit to real estate

investor

s they cater to us now sure their interest rates are a little higher but they

know

who we are they recognize

what

we're trying to accomplish they're not intimidated if you're trying to buy three properties in one year like a local bank would or even some non-qm lenders they want people to own a lot of

rental

property

they're one of us so a big fan of portfolio lenders in the event that you can't go the non-qm route or the local bank route with your

rental

property

and even if you can sometimes you may choose to go with them because they're just a heck of a lot easier it's smooth sailing getting a loan through this group and before we wrap up there's one really important sub topic i need to share with you and it has to do with down payment

what

's the down payment requirement for this well almost unanimously you're looking at at least 20 percent down for a purchase and if you're doing a cash out refinance they'll usually require 25 percent equity or 75 ltv loan so some people hear that and they say but phil

what

about all this no money down talk well no money down deals are typically done by structuring them with the homeowner where you take over their loan subject to or you do owner financing but rarely are those the deals that are long term usually when you structure subject to the seller may only allow it for a couple of years or owner...
financing for a couple of years so if you're looking to do long term deals you need to look at doing these kind of

loans

or you get a hard money loan or you do a short term deal you get the

property

renovated and stabilized and then you do a cash out refinance with one of these

loans

i get this this bewilderment from people that think to themselves that they can become these

rental

property

investor

s and acquire all these incredibly good cash flowing properties with no money down that's not really how it works instead

what

we recommend is go use the creative no money down type techniques to make a bunch of money to produce big chunks of cash and then

what

you do is you take those chunks of cash and you get these kind of

loans

to buy the right

rental

properties that are cash flowing well in the right locations does that make sense so you're you're not going to get around this down payment requirement

what

you're going to do is you're going to find a way to get the money for the down payment requirement either in the form of cash or in the form of equity when you do a cash out refinance i hope that was helpful for you hope it was very valuable information you can use and apply and if you have additional questions or comments though put them down below here i try to carve out time out of my schedule to answer them and if i haven't introduced myself i'm phil pustiovski with freedommentor.com where we specialize in mentoring and training and turning...
complete beginners into money making machines and if you don't already have it i give away my book how to be a real estate

investor

for free on these videos so make sure you consider downl apprentice program where my team and i we will take you from beginner to complete winner all right y'all well thanks so much for watching also i mentioned the beginning of the video why you should never own

rental

property

and free and clear this video that proves why that's the case thanks

every

body see you next video