How to Secure Financing for Rental Properties

Investing in a rental property is an excellent way to supplement your income and earn excellent returns on your capital. If you’re considering purchasing a buy and hold property, perhaps the most important part of your decision will be securing rental real estate financing. Without the appropriate financing, most rental property investors would never be able to make their initial investment.

So how do you go about securing the right buy and hold financing? Here’s a breakdown of the steps that you will need to take:

• Assess your personal finances

The first step is to look at your own capital and determine what type of buy and hold investment makes the most sense for your situation. Take into consideration how much you have in savings, how much liquid cash you have on hand, your age, and the amount of time you have to devote to a buy and hold investment property.

With all of this information at hand, you can start to figure out what type of property makes most sense for your situation. Perhaps purchasing a single-family home to rent out would be best for you, or maybe you have the time and resources to manage a multiunit building. Either option can bring excellent returns.

• Do your initial property research

Once you know the general size and type of investment you’d like to make, start poking around. Do initial research into neighborhoods and property types that might be of interest to you. Remember to look outside of the area that you live in in order to open up more investment opportunities that might have higher ROI potential.

It’s unlikely that any of the properties you investigate now will be the one you ultimately purchase, but they will all provide you with great information about the current market and your options.

• Pick a lender

Now that you know how much you have to invest, where you want to invest, and what you want to invest in, it’s time to start looking for a lender. Buy and hold loans come in many different shapes and forms, so it’s important to choose a lender that can both provide you with the financing you need and give you the necessary support and resources.

Make sure that your lender has a solid reputation in the industry and is well rated by the Better Business Bureau. Private money lenders usually make the most sense for buy and hold financing, because they can provide higher loan amounts than banks with less bureaucratic red tape. They are also usually a safer option than hard money lenders, who have less invested in the success of their clients.

• Over prepare

Before signing any loan agreement, make sure that you have done all of your research. Consult with a real estate attorney, a realtor, an accountant, and a contractor, if necessary, to make sure that you understand all of the costs and benefits of your potential investment before committing to anything.

Once you’ve chosen a lender, read over all of the terms of your loan carefully before signing. Then, be sure to request preapproval so that when you do find the perfect property, you’ll be able to pull the trigger right away with confidence.