how to finance an investment property?

Question

Hello Bigger Pockets community, My name is Jonathan and I am trying to identify a way to refinance an investment property that I am planning to buy using a HELOC. I am a newbie investor and I want some advice on which loan you think it is a better fit to refinance. Thank you all.

Jonathan Sala · Answer

Thank you all for great advices. I woun’t like to get a partner for now. I would like to find a loan to refinance.

Brittany Minocchi · Answer

Hey Jonathan -

Conventional financing *usually* offers better rates and terms. Another option would be a DSCR refi, but there are few lenders that will lend to someone (with this particular loan) that doesn’t currently own a primary home. Could be a problem if you’re currently renting. You’ll also need to take seasoning periods into consideration (the amount of time you’ve been on the title) - conventional require 12 months and DSCR varies by lender, 3-6 months is common.

Kerry Baird · Answer

If you are going to owner occupy a house and add value, through renovation or adding footage, you will want to use conventional financing and do it up over time. This will usually be at least 2 years, so you can plan on getting capital gains tax exclusions down the road. The house can be sold or rented at that point.

If you are not going to owner occupy the house, you can still use conventional financing. But it takes longer with a seasoning period in order to get your equity back out.

In my experience, the DSCR products expect some experience or the interest rates and down payment requirements are onerous. This is where another investor might be beneficial.

I like seller financing, where I ask the seller to carry a mortgage back for me for at least 5 years. My last couple of loans were at 6% interest only. I make a down payment to the individual and monthly payments to them. We close at a title agency or with a real estate lawyer.

Misty Jay · Answer

To piggyback off of this question: if a DSCR loan were to be approved for a property, as a new investor, would it be better to find another investor to come in on the deal? If so, what typically would be a good split between the two?

Or would it better to find a loan to match the difference?

Devin Peterson · Answer

Hey Jonathan, most investment scenarios these days fall under the DSCR space. This is an Ian product that doesn't require you to use personal income or tax returns to purchase or refinance. The loan is purely asset based so you would qualify of the anticipated rental income of the units. You could find lenders who will have anywhere between 80-75ltv for refinances, and a good DSCR lender will only require 20% down payment on a purchase. Make sure your gross rental income / Anticipated PITI payment = 1.00+ (the higher the better)

Good luck!

how to finance an investment property?

how to finance an investment property?

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