Current rates on investment properties?

Question

Hi all, new/first-time investor here. I just got my first pre-approval for an investment property in AL through Better. Single-family investment property with 20% down in Montgomery, AL area. Rate on the pre-approval is 4.875%. My credit is 780, income is low 6-figures. I know rates haven risen some from the recent lows, but 4.875% is higher than I expected. What are other investors seeing out there for rates on SFH investment properties these days? Would prefer to hear any recent quotes in the past few weeks versus quotes from months ago. Thanks all!

Scott M. · Answer

hahaha.

Rich Cady · Answer

@Scott M. DSCR is 0% so I don't think that's it but thank you for the thought!

Scott M. · Answer

Does this lender consider DSCR?  If so, what is the DSCR on this deal?   Some lenders give variable rates depending on that.

Rich Cady · Answer

Thanks Scott, I appreciate the feedback and info. Better.com seemed like an easy first step to begin looking for a mortgage since it was an online app with just a soft inquiry, but I think you're right that a local bank/CU will wind up being a better route for lower rates.

Scott Wolf · Answer

Richard, a LLC will have a bit higher of a rate, but that still seems high.  I locked in a 4.25% rate with an LLC all the way back in Jan of 2019, when rates were even higher.  I would try to find a local bank or credit union to see what they can do.

Rich Cady · Answer

Thanks @Matthew Crivelli, @Prashant Sharma, and @Scott Wolf for your replies and feedback.

Matthew, good to know there are higher rates out there. The general ballpark I've heard/read/was expecting is 0.75%-1%  above market rates for a primary residence so I would have probably not balked at something in the low 4's, but 4.9% in the current environment felt high. That said, I applied online and got an instant decision through Better so maybe I'm paying for that convenience/service.

Prashant, are you able to refer me to a lender that is offering investments at sub-4 rates? I'd like to be putting as little down as possible, but I can work out the breakeven point on the 25% down at a lower rate with the increased monthly cash flow.

Scott, I applied under my personal name rather than an LLC. I have a 3 year old LLC that I could use but I've yet to deep-dive on pro's and con's on buying under an LLC but sounds like it can be more difficult/complex. It sounds like LLCs should also expect higher rates than individuals?

Scott Wolf · Answer

@Richard Cady, are you buying in an LLC?  That rate seems a bit high.

Prashant Sharma · Answer

That's a horrible rate even after rates have risen. You should target mid-to-high 3's but definitely under 4. You should put 25% down since it's an investment and then try again.

Matthew Crivelli · Answer

Richard, you got a good rate. Money isn't free. The bank or private lender knows this is investment property and we charge accordingly. Most of the 30 year notes I'm writing are between 5%-6% on rentals.