New Loan Products for Buy to Rent Investing
Investors executing a Buy to Rent strategy are taking advantage of new loan products to leverage debt through a hard asset (their single family properties) to create income. This new breed of loan enables investors to tap into the benefits of this asset class and expand their rental portfolios one property at a time.
Single family residential (SFR) rentals have always offered investors a number of economic benefits including tax advantages and asset appreciation, but of growing importance has been more choices when it comes to loans to leverage a single property to create a portfolio.
Private lenders now offer loan products tailored to the buy to rent investor that are designed for part-time and professional investors who need bridge to permanent financing to renovate and rent SFR properties, cash out refinancing to unlock equity in properties owned to continue to invest. For cash out refinancing the seasoning period could be as low as 90 days.
While, efficient use of capital can be a springboard to building buy and hold wealth, a successful first deal can is crucial for your confidence and momentum.
Build Momentum with Your First Acquisition
The time to start is now. If there was ever a time to invest in rental properties, it’s now. According to an article from realtor.com, the rental market has grown every year for the past 10 years and the share of Americans renting is at 35%, a 20 year high. While those numbers are very exciting for potential would be investors there are several factors that need to be taken into consideration before making the leap into investing in rental properties.
First off any investor looking for a buy to rent property should first calculate how much they intend to charge for rent. Often times landlords will look to charge rent that will at least cover their monthly mortgage as well as taxes and insurance. Compare your potential property to other rental properties near you with a similar number of bedrooms, bathrooms and a similar square footage to get a sense of what the typical rent is for your area. Also be sure the calculate your Debt Service Coverage Ratio (DSCR) to make sure you will qualify for quality permanent financing.
Once you have your first property and determine your rent it’s time to start screening potential tenants. Choosing a good and reliable tenant is extremely important when renting out your property and can save you from many potential headaches. There are several ways to screen tenants such as checking their previous employment history, credit history, income, and if possible obtain references from past landlords that would give you a better picture of what type of tenants they’ve been in the past. New FinTech apps have proliferated to help you mange the process online.
Another key question for potential investors is do you want to hire a property manager? Property managers typically charge anywhere between 4% and 8% of the monthly rent, according to the same realtor.com article, which cuts into your cash flow but they are experienced and have the skills to handle any problems that may occur with a property such as a broken dish washer and any other upkeep issues. If you have experience and feel comfortable with the prospect of doing you own property maintenance then you be should fine managing the property yourself and saving on those expenses.
If you feel the need to hire a property manager then you need to make sure it’s the right one. Find out the types of hours that they work, if they only work during the week could you handle any problems that might arise over the weekend? If for whatever reason the rent isn’t paid on time do you trust them to be able to resolve the issue and make sure your payments are correct and on time? These are just a few things that you need to consider when hiring a property manager.
Investing in rental property is a great way to make passive monthly income and can help you achieve financial security. There has never been a better time to invest in rentals and the market should only continue to grow and improve as more and more Americans are living in rental properties. There are more technologies and innovated loan products than ever to help you achieve success with the buy to rent strategy.