One of the most prevalent hurdles that those just starting out in the real estate investment industry run into is how to finance transactions for rental properties.
A variety of options are available to amateur real estate investors, but certain funding sources can prove difficult to obtain approval for, such as traditional bank loans. This gives hard money lenders an opportunity to thrive in this market.
Hard Money Lenders & Rental Properties
Due to the limited options for funding available to borrowers in this space, hard money lenders can define the playing field and make the rules – this includes determining the types of loan products to offer. Regardless of whether you are closing your first deal or your hundredth, the loan types below are all potential financing options at your disposal that can be successfully used to add the perfect rental property-secured loan to your portfolio.
Bridge Loans
The bridge loan is a loan type that is perfectly suited for real estate investors seeking interim financing. Bridge loans provide money for a short term until the borrower either secures permanent financing or repays the loan. Hard money lenders find bridge loans appealing because they offer an opportunity to tie up money for only a short term, but they are secured by real property so if for whatever reason the borrower is unable to pay, the lender’s investment can be recovered through foreclosure. Borrowers like bridge loans because bridge loans provide immediate cash flow.
Long Term Rental/DSCR/30-Year Loans
This category of hard money loans is ideal for hard money lenders that are seeking to add stability and sustainable growth to their rental property portfolio. 30-year fully amortized loans secured by rental property are a great investment because unlike loans securing primary residences, loans secured by rental property have an income stream to cover the monthly debt service payments. The key benefits for borrowers of the rental 30-year hard money loan are relatively low interest rates and expedient closing process. Hard money lenders will appreciate the long term, secured investment.
Build to Rent and Fix to Rent
Build to rent loans provide financing to build homes that will be specifically used for renting. Fix to rent loans provide financing to fix up homes that will specifically be used for renting. Build to rent and fix to rent loans can be used for all types of homes – detached apartments, detached conventional single-family residences, detached modular single-family residences, attached townhomes, attached condominiums, or apartments. Both types of loans are enticing because they offer a single closing for construction or rehabilitation to permanent financing, which reduces cost and time for both borrowers and lenders alike.
Flexibility and Creativity
Your borrowers are hungry for opportunities related to rental properties, and this gives you an opportunity to be creative with terms in a way that conventional banking never could be. The options above are just a few of the options available to you as you determine the types of loan products to offer.
