Property management companies are crucial to driving success for their clients. These companies not only ensure the smooth operation of rental properties but can also play a crucial role in facilitating the growth of their clients’ investment portfolios. One tactic for such growth is through rental property loans. These loans are specifically designed for real estate investors looking to purchase or refinance rental properties, presenting a unique opportunity for property management companies to support their clients in expanding their investments.
Rental property loans are tailored for real estate investors aiming to either acquire new rental properties or refinance existing ones. These loans are typically based on future rental income, rather than the personal income of the investor. This approach simplifies the borrowing process significantly and opens doors for investors who might not qualify under more traditional lending criteria.
The loan terms are attractive: up to 80% loan-to-value (LTV) ratios, minimum loan amounts of $75,000, and a credit score requirement of 680. Investors can choose from various loan types, including fixed rates, interest-only payments, and adjustable-rate mortgages (ARMs), offering lots of flexibility.
The Process
The process of obtaining a rental property loan is easy and efficient. Starting with an initial assessment to determine maximum borrower limits and interest rates, the process moves through application, credit score evaluation, and the signing of a term sheet. An appraisal of the property follows, leading to a thorough review by underwriters who assess potential rental income and calculate the property’s debt service coverage ratio (DSCR).
Approval hinges on meeting these and other loan requirements, culminating in the closing of the loan with the collaboration of the title agency and funding department. This straightforward process is a boon for property management companies looking to assist their clients efficiently.
Benefits for Property Management Companies and Their Clients
Property management companies can leverage these loan offerings in several ways to benefit their clients:
Portfolio Expansion
By educating clients about rental property loans, property management companies can help investors grow their real estate portfolios. This not only increases the assets under management but also boosts the potential for management fee revenue.
Future Income Qualification
The unique qualification criteria based on future rental income enable investors to expand even if their current personal income wouldn’t allow for additional mortgages. Property management companies can play an advisory role, helping clients understand that this is an option.
Increased Cash Flow and Investment Potential
Refinancing options that offer lower mortgage payments or cash-out opportunities can significantly enhance an investor’s cash flow. This, in turn, opens up further investment opportunities, potentially under the guidance of the property management company.
What is a DSCR Loan?
In simple terms, a DSCR loan is a way for people to borrow money for acquiring investment properties, like single family homes or buildings that make money through rent. Instead of looking at personal income or tax returns, the bank looks at how much money the property can make. These lenders will use a DSCR calculator, which checks if the property makes enough money to pay back the loan. If the number is more than 1, it means the property makes enough money to cover the mortgage payments. This type of loan is ideal for people who want to make money from renting properties.