You might think it’s difficult to finance a rental property, let alone an entire portfolio. The truth is, if you’re willing to think outside the box, a little creativity goes a long way.
On today’s show, you’re going to learn about the best ways to finance rental properties in 2020. We’re going to cover multiple creative ways you can finance a rental property, including non-recourse financing, business credit, speciality loans, and more!
On this episode you’ll learn:
- What you need to know about conventional loan rates.
- The major drawback of using an FHA loan.
- Why a VA loan is a great option for veteran or active duty military investors.
- How business credit cards work for buying rental properties.
- What a non-recourse loan is, and how it works.
Conventional Loans
If you go to the bank for a conventional loan on an investment property, you can expect stricter lending standards, costlier down payments, and higher mortgage rates than you are used to from your primary mortgage. It’s important to note that depending on the type of property you’re buying, conventional loans will require a down payment around 15%-25%. However, if you’ve got the funds and the credit, a conventional loan can be a great fit for you. In fact, a conventional loan is one of my favorite methods for buying a property. Let’s be honest… rates are incredibly low right now. We had a client lock in a 30 year loan last week at 2.85%.
FHA Loans
Another option to consider is an FHA loan. If you don’t have access to a down payment, loans backed by the Federal Housing Administration (FHA) might be right for you. The credit score and down payment requirements for an FHA loan are lower than conventional loans. The only drawback is that an FHA loan requires that you live in the property for a minimum of one year.
VA Loans
If you happen to be active duty military or a veteran, consider looking into VA (US Dept. of Veteran Affairs) loans. These loans offer no down payment requirement, nor do they require a minimum credit score. Qualifying member can use a VA loan to buy multifamily investments, provided that they live in one of the units. If you’re interested in learning more, please watch my video on military house hacking with Michael Foster of Active Duty Passive Income.
Business Credit
Let’s talk about alternative financing options. If you’ve been around a while, you’ve heard me talk about a company called Fund&Grow. Fund&Grow helps you obtain business credit cards at 0% introductory interest. You can learn more and save $500 off your signup fee by visiting https://morrisinvest.com/funding. This is one of my favorite strategies, and a great way to get started as a real estate investor.
Non-Recourse Financing
Non-recourse financing is a loan that is tied to the investment property itself. This type of loan is in the borrower’s name and is secured by collateral. The down payments are closer to 35-40% down. The interest rate can also be higher, but remember this is not tied to your personal name. Since conventional financing limits you to ten properties, additional resources such as non-recourse financing can be useful. Another benefit of non-recourse financing is that it must be held in an LLC.
Episode Resources
Military House Hacking with Michael Foster
Fund&Grow
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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