Owning investment real estate is a great way to build cash flow and personal equity. When you are looking to get into investment real estate, it is important that you follow several tips that will help you build better relationships with lenders to ensure you are able to raise the capital you need.
Pros and Cons
For those that are looking to get into real estate investing, or expand further into the market, building relationships with banks is vital. One of the main advantages of getting a bank loan to buy real estate is that it will reduce the amount of capital that you need to bring into a project. An investment property loan can often be used to finance up to 80% of the acquisition and redevelopment costs. This can allow you to leverage your capital, which will allow you to enhance your ROI and also work on multiple projects at once.
While there are clear benefits of bank financing, there are some disadvantages as well. One disadvantage of bank financing is that it will dilute your cash flow. When you have a loan, you will have to pay interest on a monthly basis and may also need to pay loan fees. All of these costs will take away from your bottom line, but the total APR is generally less than the cap rate, which makes it accretive to your return. When you are looking to find a bank to lend on rental property, there are tips that will help you find the right lender and qualify for a good loan.
Start Moving Deposits
When wondering how to get a loan for investment property, the first step that you should follow is to open up deposit accounts with your target banks. Most commercial banks view all potential loan borrowers as a relationship. Because of this, they are looking to work with people who are willing to be full banking customers. A great way to show that you are committed to building a relationship with the bank would be to open some bank accounts. You should plan on doing this before even starting the application process.
Get to Know Lender
When wondering how to get a loan for investment property, another tip is to get to know your lender better. An investment property lender will want to form a personal relationship with their clients. This will help to ensure that they feel comfortable with you and have a better understanding of your business goals and future potential business. One of the best ways to get to know your lender is to have a meal with them or go to a social outing outside of normal business hours. This will help you work towards developing a mutually beneficial professional relationship.
Understand Marketplace Requirements
When you are looking to find a bank to lend on rental property, you also need understand the requirements that banks will have to provide you with a loan. The underwriting requirements from one bank to the next are often pretty similar. These will have requirements as far as LTV, LTC, cash flow of the asset, and credit score of the owner. Banks will also have standard expectations in regards to what type of underwriting package you provide. Once you have developed the reputation for providing banks with reasonable requests and underwriting packages, it will be much easier to find new lenders. Most of this should be figured out prior to investing. If you’ve created your real estate business plan you should have to worry!
Investing in real estate is a great way for anyone to build long-term wealth and earn monthly cash flow. If you are looking to invest in real estate, a great option would be to work with a bank to get an investment real estate loan.