Real estate is one of the pillars of economic wealth. Real estate offers stability that the wealthy utilize to secure their wealth around the globe. There are varying levels of opportunities depending on where one lives, but one thing is universally true. Finding the best lender for investment property isn’t about your race, nationality, or your beliefs. It is about numbers and what the lender offers!
To find the best lender for investment property, there are key factors to keep in mind. Not every lender is going to offer the right terms for your company. Finding the right lender is the same as finding the best lender because they meet your needs.
Contrary to popular belief, however, investment loans have limitations, and the market crash of 2020 has most traditional lenders still spooked. With a rise in loan defaulting, creative investment loans are becoming commonplace… outside of regular banks.
How To Find The Best Lender For Investment Property
There are specific fundamentals to remember about investment property loans. Although the definition seems clear, it can actually be quite convoluted. There are limitations to what lenders will loan money for, even if you believe something to be an “investment.”
Some of the most pertinent terms/considerations to keep in mind include:
- An investment property must have an ROI. (Return On Investment) This must be calculated as it will be a major statistic lenders want to see.
- An investment property is an “investment” when the purpose of the purchase is to make profit.
- Who is going to manage the property? You? A management company?
- Are you financially stable? Is your company afloat? Lenders will use your business financial data to substantiate the loan. (Besides our previous investment history) That is, unless you are purchasing as an individual and not a business entity.
- What are the housing trends where you intend to buy? Market trends are vital to evaluating investments.
- Decide if you are going to invest with a partner.
- How much are the property taxes? This is crucial for you to know ahead of time.
Remember that the more information you have the better prepared you will be for the investment. (And the more confident lenders will be when loaning you money)
Let’s talk about some of these factors when evaluating a property.
To calculate your Return On Investment, you will need to calculate how much profit you will make, minus the upkeep/expenses. Then use that number with your total investment cost to calculate what percentage your net income (money received after expenses) is of your total initial investment.
For instance, if you invested $50,000 into a property, and you net $5,000 every year after paying your expenses for the property. You are making 10% of your total investment every year. This means you have a 10% ROI.
After 10 years, you will have made your money back 100%. After the initial 10 years, you are now making pure profits.
Understanding An ‘Investment’
The primary difference between a personal purchase and a business purchase is that one is non-commercial. That’s a simple difference. However, with an investment purchase, the definition becomes less clear. Although a business can purchase an item for its own purposes (which is often thought to be an investment) the correct definition of an investment is that it is initiated to make more money.
If the intent and purpose of the purchase isn’t to make an ROI, then it technically isn’t an investment. This is important to note when seeking an investment loan.
Who Is Going To Manage The Property?
Anyone who has ever studied property management cringes at the thought of unclogging a toilet in the middle of the night for a tenant. A landlord has a legal duty to solve a multitude of issues that a tenant might report. Some are more elaborate or tedious than others.
Unfortunately, single family investment properties usually require specialized management solutions. Larger investment properties are more desirable for management companies because those properties cash flow better. The management company has more confidence that the property will not foreclose.
If you are going to manage a single family or small residential property for investment purposes, remember that management may not always be available for it. If you aren’t going to manage the property, have an existing company ready to start managing it before applying for the loan. Otherwise you could find yourself in a highly undesirable situation, forced to manage a property like a handyman. (Or the lender might notice the lack of management and turn you down for a loan, knowing that you might back out of the deal because of this)
Understanding The Future & Finding Best Lender For Investment Property
There are many reasons why a lender may turn down your application. However, if you have done your due diligence when evaluating an investment, you shouldn’t have much of an issue acquiring the funds you need.
Lenders make money when they get paid interest. There are risks, and they lend more money out when those risks are lower. If you’re able to make an investment look safe and profitable, lenders will work with you.
There are ways to make future applications faster, and gain funding quicker overall. The easiest way to do that is to use a loan broker. Someone who has the connections and experience to get you a loan quickly.
That being said, there aren’t any shortcuts for you when evaluating a property. The broker doesn’t change the speed that you do that. The broker makes the loan process faster, which saves you time and money.
If you are looking to find the best lender for investment property, then we recommend you use a loan broker. No one has the ability to negotiate on your behalf like they do, and they can help structure creative funding like no one else.
Here at Business Lending Blueprint we teach people how to quit their jobs and or build an income stream that is “recession proof.” No matter the economic downturns, loan brokers make money and stay afloat. (Our students were thriving in 2020 because they were connecting companies with the funds they needed)
Learn how to become a loan broker and build a business around this lucrative business model. Click the link below and watch our free training video that details everything you need to know about this opportunity!
See you soon!