Finding Loans for Rental Property Can Be a Daunting Task

[Corey Dutton]

After between 2011 and 2012, many real estate investors started picking up rental properties with their own cash. Those who had primarily focused on purchases for quick resale leading up to 2011, began to shift focus. Once competition among “flippers” spiked in many U.S. markets, demand increased in the buy and hold category. Many real estate investors have begun to build their rental property portfolios, primarily making purchases with all cash. Three years later, these same buy and hold investors are now seeking loans to refinance or ‘cash out’ their rental property portfolios.

Loans for rental property having been growing in demand in the last couple of quarters. The majority of these loans are refinance loan requests from real estate investors seeking to cash out on their rental properties in order to buy more. Because the demand for loans for rental property has increased in the past 6 months, this has also made the process of obtaining these loans a daunting task for real estate investors.

Looking to obtain a loan for a rental property can be similar to taking on a part-time job. For real estate investors seeking rental property financing, whether for a purchase or a refinance, seek out as many different lending sources as possible. Particularly on a purchase where time is of the essence, many real estate investors will go the way of private money or “hard money” loans. Real estate investors, particularly on fast closings, commonly use hard money loans. On a refinance, because there is no pending deadline, one can afford to seek out more alternatives for financing.

Lending standards have not loosened up, particularly on rental properties. Banks, credit unions, and portfolio lenders have a variety of loan programs and each has its own requirements. For this reason, make sure you meet the initial requirements of any loan program before you take the time to fill out a lengthy application. If you are denied for a loan, study those items that are required and begin to govern your business activities according to these standards. For example, make sure you are filing your tax returns for the business entity that holds title to a rental property, as a bank will request them as part of the underwriting of the loan. And lastly, create a good relationship with a reputable mortgage broker in your area of real estate. A broker who understands the unique requirements of each loan program can save you an enormous headache in the process of obtaining loans for rental property. Similar to finding rental properties to purchase, approach the process of obtaining a loan with a strategy and use qualified professionals around you to assist in your search.