Real Estate Investor Financing
Wannabe Investors, now is a great time to invest in residential properties. Whether your strategy is single family, two to four unit buildings, condominiums and town homes as well as multifamily apartment buildings the combination of great prices and accessible financing makes this an optimal period for investing. If you are a Real Estate Investor operating in the business buying residential properties to hold for profit from the positive cash flow and equity appreciation, there were only a few financing options available. For conventional residential one to four unit properties the standard conventional guidelines limits a borrower to only have four properties financed, including their owner occupied personal residence.
Now there is a great solution for you. Even while conventional financing guidelines severely limit who can qualify (and this has only gotten worse in the past few years) there has been a rise in private lenders that will lend on residential investment properties with similar guidelines as commercial apartment financing. This is great news for the those in the business of owning and managing their own portfolio of rental property. Here are a two examples that were not often available even a few months ago.
Like all options discussed in this article this financing is for business entities, such as limited liability corporations or “C” Corporations, and not for individual sole proprietors. This is to make sure the lenders are not violating any residential lending laws meant to protect consumers as the purchase and finance their owner occupied homes. Inherently these collateral must always be non-owner occupied and used for investment and business purposes. Understanding this, it is natural that any blanket mortgage must cover at least five units. Anything less would not be considered commercial lending.
What is a Blanket Loan?
A blanket loan is where two or more buildings are encumbered and used as collateral for one loan. In other words one mortgage can cover two properties or one hundred properties versus two to one hundred loans. Could you imagine being a small business owner with fifteen or more projects that you own and are holding that each have separate loans. Generally, they are like buildings in a relatively close proximity, but that is not always mandatory. For the Entrepreneur who seek to buy and hold multiple properties for long terms the blanket loan could be a great option. Additionally, it may actually cost less even though there are not many programs available for these small business owners.
No Seasoning Cash Out Refinance
The term “seasoning” in the mortgage world means how long an owner has owned the specific property. It can sometimes mean how old a loan is, but for our discussion seasoning is limited to ownership of property. The underwriting rules for a conventional lender requires a property to be “seasoned” or owned for at least one year for the value to be based on the current appraisal versus the acquisition costs. For example if the purchase price was $50,000, the rehab cost is $10,000 and the current appraised value is $100,000 the maximum loan would be 75% of the purchase price or $45,000. The value is $60,000 based on the the seasoning rule. With no seasoning requirement the the loan amount would be 75% of $100,000 or $75,000. This real estate investor strategy allows the investor to buy and hold plus earn an immediate profit of $15,000 if they refinanced (minus closing costs). This allows the investor to have similar immediate return as a flipper yet they still own the property with all the benefits of the cash flow and equity growth. This works on small transactions as low as this seventy five thousand dollar deal to as high as multi-million dollar commercial apartment buildings. Quite often with commercial lenders the seasoning time may be two years cor cash out refinance transactions.
No Seasoning Cash Out Blanket Loan
Finally and most importantly, there is the ability to use both of these strategies simultaneously. This offers the businessmen to access cash in their real estate portfolio they they would not have access to with any conventional funding programs.
These are just two financial options that can help the small business real estate investor succeed when they choose to own to rent or buy and hold their properties for long term cash flow and equity building.