Interest rate on investment property? Hmm..

24 Replies

Greetings folks,

I am attempting to finance a rental property. I have never taken out a loan on a rental property before, since I’ve always paid cash for it. I am trying to scale my business up and not spend all my cash on one property, but instead use 20% for down payment and finance multiple properties. My lender advised me that an interested rate with Wells Fargo is 6.25% with 30 year fixed with 20% down. Does this even sound reasonable. In my eyes, it doesn’t but again what do I know.

The numbers make sense on the property, I would be cash flowing around $500 per month, plus I also would have immediate equity. So, the numbers are not the issue, I just can’t wrap my mind on that interest. Am i focusing on the wrong things and not seeing the big picture? What other options do I have? Assistance is much appreciated.

If your credit is good and you have other properties...I would wonder why so high also.

I believe that you should be able to get a better loan somewhere else. 

If you look.

Good Luck!

@Huso Akaratovic

This does seem high, but as others said your credit is taken into consideration along with the property type and loan amount. If this property less than $50k? 

On I get it now it is a smaller loan.  Big banks don't usually cater to those size loans for investments. 

Just a quick FYI, a bank loans out say 1 million dollars a month....a low number but bear with me....

a percentage of those loans have to be in the small bracket under 100k then another percentage is between 101 k and 500 k and then there are loans over that say 501 k to 1 million. 

This is know as being diversified-

A normal bank denies 5 our of every six loans for whatever reason....it could just be they have reached their quotas for the month.

If you have any questions just ask.

I made contact with a local bank. They advised that 30 year loan would be 6-6.25% just like WF. However, he mentioned that their 15 year mortgage offers 3.8%. The difference is approximately $45 in cash flow. Is this a no brainer? Or am I missing something again? 

Also, I am kinda on a short time frame with this deal. It’s a wholesale deal and they want me to close ASAP. The banks are advising between 35-40. They said they can wait 35, but I need to make a decision no later then Friday. The banker at WF, I have an establish relationship with her and I knew she can get this with hassle free, while the new bank I have to start all over from the scratch. Thoughts? 

@Huso Akaratovic

For a property valued that low just get a personal loan. You should be able to get one for 5-7 years around 5%. You get the interest write off, leverage benefit (though scaled down), but  unlike a mortgage still get the benefit of a more appealing offer of paying in cash

@Huso Akaratovic

Well, do you have time to get approved with another lender and still maintain the existing deal? If so definitely do so since you're going conventional and can get a lower rate. That said, if you need to move quickly to keep the deal, and you're already approved with WF, go for it! You said the numbers make sense, so it should be a win if you've calculated everything correctly. My point is, don't get analysis paralysis and lose this deal. My two cents...

@Huso Akaratovic

I’m closing on a cash out refi on a rental property I own outright tomorrow. The lender I used is giving me a 4.1% interest rate on a 15 year loan. My loan is for 140k. They may be able to give you a better rate on that small loan.

@Michele Wax

Michele put it best you’re asking for a small

Loan and for that small of a loan the interest rate increases. Banks make an investment in lending you money and if they lend you what’s looks around 36k they’ll make very little on their return at say 4%. That’s why you’re getting quoted a higher interest rate.

Another item to be aware of the Federal Reserve has been on a slow and steady interest rate increase since 2015. Many of us listen to BP or have bought homes from a few years ago and hear 2.5-3.5-4.0 interest rates and think well I got that in the past I should get that now. The reality is that the benchmark is 4.25 now and that’s continuing to go up. Even after Federal Reserve chairman Jerome Powell announced yesterday there will be no interest rate cut for the near future unless the economy declines.

In addition to this it sounds like this is not a conventional FHA loan correct? Your interest rate will be higher for what's considered a commercial loan as well. If you were to move into the property and perform what many people call a house hack (living in the property while renting out another unit). Than you could qualify for an FHA loan and receive a lower interest rate.

I hope all of this was helpful and good luck.

@Huso Akaratovic If you have time to set up a new relationship, I would try langley federal credit union or old point national who are both local in Hampton Roads.  I used to do a lot of work with Townebank but they have changed policies recently and are not as investor friendly.  If you are cash flowing at your numbers though, I would stick with a known entity if it would mean you might lose the deal.  I was in a pinch recently on a refi and had to go with a broker but I paid for it. 

I have run into problems on the smaller price point deals below 100K as some banks don't even want to touch them these days.  Message me if you want to talk more about the local 757 market.  

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