Leverage When Buying Rental Houses

How Much Should I Put Down When Buying Rental Houses?

When you are going to purchase any property, you need trusted professional who would assess the value of the property and make an estimate of the value of the property. The purpose of buying a rental house is to receive rent from their tenants. The investors tend to make more money by increasing rents whenever a lease term expire and even when tenants are renewed.

But banks find it very risky to finance the investment properties and hence they charge higher rate of interest and add more points in the loan agreement than the usual mortgage papers. This is because, the bankers think that since it is an investment property to rental houses, the house will be occupied by the tenants and hence the owner will have less or no attachment for his property. The owner wants to make money out of the rent and hence may sell it when he gets the higher price for it. So he may not have the interest to pay the loans if there is no tenant or if his financial condition becomes tight. In that case his rental house would be his secondary option and he would spend to pay his basic needs at first.

Higher interest rate in Banks for buying Rental houses

So investment in rental properties is very much different from mortgaging a home for one’s own use. Even though with a very good credit rating, the interest rate will be around 1.5% to 2.5% higher in case of buying rental properties than the repayment amount of mortgages. So while buying a rental house, the banks expect that the investor should pay a higher down payment. About 20% of the total value of the property must be the down payment as per the bank rules and regulations. It is good if one is interested to pay more than that. Then the risk of defaults in repayment becomes lesser. For a commercial bridge loan, you will need 35% generally as credit takes a back seat in underwriting.

Seller financing is the best option for buying rental properties.

In the process of seller financing only 10% of the whole of the property value needs to be deposited as down payment. Seller makes the interest payments only and the bulk amount by 60 months. The seller also does not charge any processing fees and only feels happy if he can get upto 6% to 7% interest.

Taking money from the private lenders is the second option. 

The private lenders get more interested in investing money in houses. They find it to be a better alternative than investing money in stock market or in share trading. In investing into homes, they get a guaranteed return of 6% to 7% of the invested amount. So they consider it to be a better alternative.


Planning is must for loans for buying Rental houses

A proper planning need to be formulated before applying for loans for buying the rental houses. A quote should be taken from all the prospective financers. The copies of the terms and conditions for each of them are also kept. A careful analysis is required so that the investor can take the right decision about which option to select for getting the finances for buying the rental house.

What Interest Rate Should I Charge When Seller Financing My Commercial Property

There is a great advantage of purchasing an owner-financed property since the terms and certain details of the loan will be negotiable between the buyer and the seller. Conventional mortgages were much regulated and there was no chance of any changes in terms. In an owner financed transaction, the lender may also ask you to pick your own interest rates. But when it is an owner-financed mortgage, the rate of interest is negotiable. But then, most of the sellers will not finance 90% of the asking rate but you can certainly borrow at 10, 20 or 30% from seller which is pretty competitive and beats credit card to cover the capital short falls. So, when the seller is financing your commercial property, there are various tips you can follow to arrive at an ideal interest rate.

Charging fair interest rates!

There is nothing called ‘fair’ interest rate in seller’s financing. What is fair for the buyer may be too less for the seller. The seller always demands for high interest rate while the borrower craves for lower. A lot depends on your circumstances. So, when the seller is refinancing your property, make sure to assess what you can afford. If he is charging too high, try another seller.

Going by the national rates of interest!

If you are confused what interest rate is appropriate for you, you can go by the national rates. Buyers have to face credit challenges when entering an owner-financed transaction. Hence, they may be in a weak position to negotiate over the rate of interest. As per the credit score of the buyer, the seller will ask for higher rates. So, it is great to choose the national rates. Seller in the owner-financed deal knows very well that the buyer is not in a position to take loan from a financial institution and so charges hefty rates.

Opting for a larger down payment!

When the down payment is large something like 20% it increases the buying power of the buyer and gives him the leverage of negotiating better amount. A larger down payment can allow the buyer to either meet or beat the average interest rate. So, it is very likely that the seller will ease off the rigid and strict terms once the buyer proposes to pay thousands of dollars at the closing table.

Lower rate of interest with short term loans

Sellers are impatient at receiving the balance amount on the owner-financed mortgage. In the seller financed deals, the term ‘balloon payment’ is quite common. It is the total balance that remains after certain time period. You can strengthen your buying power by agreeing for the shorter term. This makes it possible to get an interest rate which is lower.

The satisfaction of both parties

The interest rate is very much dependent on what is agreed by the buyer and seller. Several variables are involved in the owner-financed transaction interest rate. Owner financing is always the matter of give and take. Interest rate is an important factor in negotiating terms.

It is always great to go by the standard rates which should be applicable. Although the owners do not openly disclose their willingness to finance the sale, but they commonly consider offering at 5-15% of the property purchase price.

Can house flipping be profitable

Since 2000, house flipping has been in trend for investors and real estate agents. In order to make a profit in a rather short term, these people opt for property flipping. Now this process of property flipping comes with its share of pros and cons.

Pros of house flipping:

Profit within a short time period is the biggest advantage of constant property flipping. Often landlords tend to increase rents on renewal on the contract. The immediate flipping of the house would result in not having to pay the extra money that would escalate every year.  One year at the pre-fixed rental amount and then no creating of scope for exploitation on the part of the tenant by the landlord in terms of increased rental payments. The second advantage to the act of house flipping is that the flippant only remains aware of the plans regarding the house flipping. This gives a sense of ownership over oneself, and the tenant cannot control or manipulate the mind workings of the tenant. The third aspect is the creation of new contacts. The new-fangled contacts of realtors, investors, agents can be considered a future investment where the cordial radiant relationship would be to the tenants’ improvement. The flipping of houses for a family who does not expect to settle down with their own house anytime soon will find very enriching in experience. These experiences can be of different aspects. Te construction is no more a mystery but the owner every time accessing their services becomes a master in the subject. Constant touch with the local market would mean that one can judge for herself the right options for choosing a house. A winning property might be a traditional house, but that might be because of other affecting reasons than a modern styled house that loses owing to the absence of those other circumstances.

Cons of house flipping:

Patience is a major thing one needs in order to constantly keep on house flipping. To pack and unpack everything and then settle down every time at new places, several circumstances would be so that by the time one is able to suit herself to one locality it is time for her to leave and go. Apart from the lack of time most people also lack the professionalism to deal with house flipping very often chances are so that the much-anticipated profit from the house flipping would not be generated , as most of it would be spent for the professional help required every time to fix a house that was taken on rent. In that case learning or grasping and enjoying these skills would be profitable for the usual house flipper. This trend is also seen that many a time’s people lack the monetary capacity to afford house flipping and coping with the increase in rent seems the hassle free feasible option.  Every time a new property is fixed and rented the city through the government would impose newer taxes on the property that the tenant is likely to lose his profit over yet again!

The bottom line suggestion is house flipping should not be an instinctive decision and definitely should not be done at short intervals. Rather a proper market study and then waiting for the right selling and cost price of property for the deal to take place.

Hard Money Loans

Financing is all about a huge topic, and it covers a lot of ideas which may be interesting or maybe not sometimes. But whatever may be the case; it is the practical thing that we all have to face it. The term commercial hard money loan is something which is among such topics which are weird and may be quite unnatural. But when you come to the depth of the topic it is nothing but the same thing in a strange loop. So now we can have a discussion with the hard money loan that may sound something very serious with a dangerous outcome.

Hard money loans for the business starters

For the starters what are commercial hard money loans it may be a hard question for you? But what actually means is that it is a type of loan that is being offered to the corporate that is guaranteed based on the assets that are immovable properties. And the value of the asset says the loan amount which is its only strength. These types of loans are mainly being taken up by the developers who are turning a space into a commercial space, and thus, it is an immovable property which fulfils the category.

Private companies stretch out the helping hands in hard loans

Now the next point is who invest these kinds of loans. Mainly the private companies or a lender often gives these kinds of loans. They ensure about the property in every single way so that it is not the illegal one. Personal assets are not considerable in these cases, and thus, only space is the valid one. This, in turn, gives the private lender a guaranteed way to get the good return in case the borrower is a defaulter in any case. They don’t have to get the mess ups with the other invaluable properties or things in return of their loan amount.

You have to make money very fast

Mainly the terms of these loans are of the shorter time period. Most of the common loans are of thirty years and longer time period. But these kinds of hard loans are only up to five years. Within these short periods of time, you have to repay the loans amount . Otherwise, you will be a bad defaulter. Thus, an additionally high rate of interest is being charged for these kinds of loans. But still many support it to get the investment amount immediately without being extended for a further and extended process which is a great issue with the other kinds of loans.

Prepare with some amount besides the loan

An important thing to keep in mind that the hard loans are hard in few ways. The loans amount only covers the sixty percent of the entire amount of investment. So you have to keep ready the rest forty percent with you to get the startups. Moreover, the plans and business should be an expecting one which may impress the lenders that it will give back money in the next few years. Make your money and return their money within time is the main aim of the process. Thus, it is a good one of high revenue that is being refused by most of the other places.

Should I Allow Pets In My Newly Refurbished Apartments?

When you are considering to rent out your new apartments to some families, the first thing that you need to do is, set out a list of dos and don’ts.  This list will help you to make your requirements verbal to the clients. This will also help the clients to know whether they will be comfortable in your flat. Thus it is important to set out a list of dos and don’ts.

Among the many other questions that you will ask yourself during the process of penning down your requirements is – do you want pets on the newly furbished apartment? This is a very common question. These days many families have pets and they would like to live in an apartment that is pet friendly. But then again there are some individuals who should be looking to stay in places that do not allow pets.


Pros Of Allowing Pets

The most apparent pro is that you will be shortening down to one less don’t. When you have too many don’ts to can send a wrong signal to the interested parties. Another pro is that these days most families have at least one pet. If you are putting a foot against having pets in the apartment then you are decreasing the number of options for yourself. If not anything else pets can be adorable thing to have near you!

Cons Of Having Pets In Your Newly Furnished Apartment

The biggest con will definitely be the mess that they often make. When you are refurbishing an apartment, you would want to keep it clean and sparkly for as long as possible. But a partmight just not let you do so. Big animals like dogs and cats need to move around and cannot be kept captive. They might do something to your walls which have fresh coats of paint on them. They often shed a lot of fur which again might be a problem if you have put in new fabrics on your house. Another problem is that in case you have a tenant who is allergic to the pet kept by another tenant, then it might end out to be ugly.

Thus having a pet has its pros and cons. It cannot be said for sure which one is the better option as both have their set of problems. It is recommended that you choose based on the locality. If it is a family based locality then it is best to allow pets.

In case you as an individual is not sure whether you want to keep pets in a house that you have purchased newly or have refurbished then again it depends on your ideology. If you are taking on a pet then there is a chance of damage. But having a pet can be a blessing too. So it is important that you take a decision after you have taken all the points into consideration. The answer to the question, thus depends on person to person and does not have a definite answer.