Thursday, 17 January 2019 00:00

Best Investor Financing Tips for Increasing Your Portfolio's Value

Best Investor Financing Tips for Increasing Your Portfolios ValueOne of the most important aspects of success in real estate investing is understanding how to properly finance your portfolio.

Countless investors skip this step, though.

They may eventually build what appears to be an impressive portfolio of a dozen or more properties, but because they didn’t finance it correctly, it hardly provides a full-time income.

So, while success requires mastering a number of different areas, creating a robust portfolio of rental properties will be much easier if you understand how to make the most of investor financing.

 

4 Investor Financing Tips That Will Increase Your Portfolio’s Value

Fortunately, understanding how to effectively finance your portfolio is probably a lot easier than you think. The following four investor financing tips will give you all the information you need to avoid common mistakes and optimize every loan you receive.

1. Leave Behind Traditional Lenders

Without a doubt, one of the most important things you can do to improve your chances of success with real estate is leave behind traditional lenders.

They’re fine for taking out your first mortgage for your primary residence, but after that, they will quickly leave a lot to be desired.

In fact, as soon as you apply for your fifth mortgage, you can already expect trouble. Back in 2009, FNMA introduced their 5-10 Properties Program, which was supposed to make it easier for investors to expand their portfolios past 5 homes.

Unfortunately, there still isn’t enough demand to make this kind of investor financing worthwhile for most traditional lenders.

Their stock-and-trade is offering mortgages for primary residences, not underwriting loans for someone who already has four mortgages. So, despite FNMA’s endorsement, many traditional lenders don’t even offer the 5-10 Properties Program and will turn you away outright. They simply don’t understand the unique needs of a rental-property investor.

After four mortgages – maybe even before – stick with lenders who do understand rental-portfolio investing and you’ll have an easier time increasing the value of your portfolio.

2. Try to Secure Seller Financing with Every Deal

Sometimes, the seller themselves are the ones who will offer you the best possible terms on a loan.

That’s right. The person selling you the home can actually serve as your lender, too.

This is known as seller financing. Everything else about it mirrors a typical mortgage, though. You and the seller will sign a promissory note that details all the terms, including the interest you’ll pay.

Not every seller will be open to the arrangement, of course, especially if they’re selling the property because they have a pressing need for money.

However, many will love the idea because it means that, by the time the loan is paid off, they’ll actually end up with more because of the interest payments.

Investors love seller financing because it means they can lock in much lower interest rates than what most lenders would be willing to offer. Again, the seller will be okay with this lower interest rate because it means they get more than what they had originally expected – even though it’s still a great deal for you.

Usually, the terms for this type of investor financing involve a balloon payment at the end, too. In that case, you’d have extremely low monthly mortgage payments and only need to save a certain amount from your tenant’s rent to make that final installment.

Even if the seller isn’t comfortable financing the entire sale, you can still work out an agreement where they “carry back” the mortgage, meaning they will help you with part of the total price.

So, you’ll still need a loan, but it won’t have to be for as much.

Either way, this type of investor financing means paying less for a home, which, ultimately, will increase the total value of your portfolio. It’s always worth requesting.

3. Leverage the Properties You Own for Better Loans

Like we touched on earlier, the more mortgages you take out, the harder it will be to take out more if you continue trying to work with traditional lenders.

Leaving them behind will help, but so will learning how to leverage each property you purchase into better loans.

The easiest way to do this is with an asset-based loan. In short, you’ll use your properties as collateral when applying for a mortgage. When a lender is considering your application, that collateral is really the only thing they’re going to look at.

This is great news for investors with a lot of properties, as all those mortgages can do a number on their credit score, even if their financial history is otherwise pristine. Without this type of investor financing, many of these investors would either have to go without loans or accept the types of terms that would sink their portfolio’s value.

4. Use Blanket Loans to Buy Multiple Property Loans

Finally, increasing the size of your portfolio isn’t necessarily the same as increasing its value if you keep taking out one loan at a time in order to do it.

At some point, you need to start thinking about buying multiple properties at once.

When that happens, there’s a specific type of investor financing that makes this easy: blanket loans.

Blanket loans are essentially one mortgage that covers multiple properties. Aside from the convenience of only having to make one payment every month, that big, single loan is going to look a lot better than multiple loans for the same amount. This will help you lock in even better terms in the future, further improving your portfolio’s value.

Need Investor Financing to Grow Your Real Estate Portfolio?

If you implement the four tips above, you should have a much easier time using investor financing to grow your portfolio quickly.

As we covered above, you’ll soon reach the point – if you’re not there already – where it no longer makes sense to take out just one loan at a time.

That’s when we would be happy to help. At Rental Home Financing, we specialize in servicing real-estate investors who want bigger portfolios without having to put up with bigger obstacles.

You can actually begin our blanket loan application process today. We appreciate that time is always a factor with real estate deals and will let you know if you qualify right away, so you can continue with securing your loan.

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