Hard Money Lenders for Rental Properties
Should You Use Hard Money Lending For Rental Properties?
One of the most common obstacles that new real estate investors face when they are looking to buy rental properties is financing. There are several choices that new real estate investors can apply for, including bank mortgages. However, these types of loans are often more difficult to get approved for than hard money loans for rental properties. In this guide, we will only focus on hard money lenders for rental properties and the different types of loans that fall under this category.
Deciding to invest in real estate is a potentially very lucrative way to diversify your financial and investment portfolios. Although you can choose to invest in real estate passively through real estate crowdfunding or RETs (real estate investment trusts), the majority of investors prefer to directly own the property they are interested in.
If you do not feel comfortable paying out a lot of money upfront to purchase a rental property, a hard money loan may be the best choice for you. Although this type of lending product offers several benefits over regular financing, there are those who do not agree that hard money loans are viable forms of real estate financing.
Many financial and real estate experts are often opposed to the idea of new real estate investors taking out hard money loans. Nevertheless, we believe that this is an ideal loan option for many reasons, and there are reasons why you should choose this type of financing over traditional lending practices. So, if you are ready to learn more about hard money lenders and how they can help you, continue reading.
Rental Property Hard Money Lenders
Rental Property hard money lenders take a close look at the property’s value when they are making the decision whether or not to approve financing. In fact, they look specifically at the property’s ARV (After Repair Value). This is an estimate that is placed on the property that predicts what it may be worth once development or renovations have been completed.
As previously mentioned, these lenders typically approve loans for financing as long as the asset in question meets their criteria. For example, for a commercial property such as a rental property, the lender will take into consideration the value of the building before making a final decision on approval. If the building is in need of renovations, the cost for the renovations is also considered in the final value of the property.
Depending on the terms of the loan, the investor can expect to receive financing for up to 80 percent of the property’s value.
Some real estate hard money lenders may only lend money in certain regions, while others are willingly to lend money to investors nationwide. One of the best ways to locate a hard money lender is to search online for ones that are in your state or those that work with investors across the country.
The Different Types Of Hard Money Loans for Rental Properties
There are several types of loans investors should be familiar with from hard money lenders for rental properties. With these loans, investors are able to buy, cash-out and even refinance rental properties.
All of these loans have been designed to address the varying needs of real estate investors. No matter if you are brand new to the world of real estate investing, or you have a diverse property portfolio, the following are some options for you to consider so you can find the perfect hard money loan for your needs.
Rental 2+1 Hard Money Loan Summary
The Bridge the Gap Loan, also known as the Rental 2+1 is a financing program that is ideal for real estate investors who are looking for the financing they need between short-term financing and long-term financing.
This loan has a balloon of 2-year interest , and there is also a 12 month extension that is also available at a rate of 7 1/4%. This is applied to the refinancing or the purchase of a portfolio or a one rental property.
Interest rates are based on:
- Rent coverage ratio
- LTV (loan to value)
Rental 30 Premier Hard Money Loan Summary
This type of hard money loan is perfect for investors who are looking to create stable and permanent growth with their portfolio of rental properties. They are several benefits to this type of hard money loan product such as:
- Low interest rates
- Fast closings
Rental 30 Hard Money Loan Summary
- Length of loan – 30 Years, Amortized
- Rate – 5.25 to 7.9%
- Minimum loan amount – $50,000
- Maximum loan amount – $1,000,000
- Minimum credit rating – 620
- Maximum LTV – 75%
If you are considering new construction for your rental property, a Build2Rent hard money loan offers real estate investors the opportunity to get a single-close loan. This loan would be both an interest-only loan for construction.
After construction, you can then use a Rental30 hard money loan to upgrade the rental property.
- Construction only financing
- Loan terms of 13 to 19 months with fixed interest and a balloon note
- Rates are fixed
- Completely Amortized
- Suitable for SFR properties (1-4)
- Minimum loan amount – $75,000
- Maximum loan amount – $5,000,000
- Minimum credit rating – 620