Purchasing Rental Property

Purchasing rental property with real estate investment loans is a common way to invest in real estate. The real estate investor attempts to find a property they can purchase, hold and rent to a tenant for more than the monthly holding costs for the property such as principal, interest, taxes, insurance (PITI). Renting a property for more than the monthly obligations creates positive cash flow, a major investing goal of many real estate investors. The investor will also want to gain appreciation during the holding period and benefit from tax strategies that will increase their profits from buying the rental property.

Financing for rental property usually requires at least a 25% down payment. Real estate investors will often pull equity from an existing property they own in order to raise funds for the down payment of a new rental property purchase. The lender, often hard money lenders, may wish to see that the real estate investor has some additional funds set aside in case of any needed repairs, vacancies or any other unforeseen issues.

Investment Property Loan Interest Rates

Interest rates for investment property loans are higher than traditional loans from the bank. The investment property interest rates will depend on the details of the specific loan scenario including the loan term length, loan to value ratio (LTV), location and condition of the property and the general risk of the investment to the lender. The interest rate for investment hard money loans will generally be in the range of 8-12% depending on the lender and geographic location of the property. Most bank loan departments specialize in home loans for properties that are occupied by the owner, and are less comfortable providing funding for investment properties.

Hard Money Investment Property Loans

A faster and more reliable source for investment property loans are hard money lenders. A hard money lender mainly works with real estate investors and understand their need for quick loan approvals, fasting funding and lack of red tape. An experienced and reliable hard money lender will be able to approve the borrower and fund the hard money loan within a couple weeks as opposed to 45 days+ for a conventional lender such as a bank or credit union. Hard money lenders are also able to provide investment property rehab loans for investors who wish to purchase and quickly make improvements to properties and sell them immediately as opposed to holding them for a longer period.