What Are Examples of Successful Investment Property Financing Deals?


    What Are Examples of Successful Investment Property Financing Deals?

    In the intricate world of investment property financing, we've gathered insights from seasoned mortgage industry experts, starting with a Mortgage Broker's success in 'Refinance and Balance Investment Financing.' Alongside expert strategies, we also present additional answers that explore the breadth of opportunities in this space, including innovative concepts like 'Profit from Short-Term Rental Arbitrage.' These narratives weave together the expertise and creative approaches that define successful investment property financing.

    • Refinance and Balance Investment Financing
    • Qualify Through Market Rents Appraisal
    • Explore Crowdfunding Real Estate Opportunities
    • Secure Deals with Seller Financing
    • Mitigate Risks with Equity Sharing
    • Leverage Government-Backed Loan Programs
    • Profit from Short-Term Rental Arbitrage

    Refinance and Balance Investment Financing

    When it comes to investment property financing, the lender is concerned about debt servicing, credit score, down payment source, and risk. Whereas clients are more concerned about rate and cash flow. As a broker, I need to find the balance between ensuring the client is a good fit for the lender, and the client making choices that fit with their goals and creating a financial life by design rather than by accident. Recently, to bring these pieces together, we needed to refinance the client's vehicle and RV to gain access to additional capital for the down payment, which also actually lowered the monthly payments, helping with debt servicing.

    Since the property being purchased was a four-plex that needed some improvements, we then had to balance the conventional and insurable lending options to see the impact on debt servicing and include $85K of improvements into the mortgage. The rental offset used by most lenders differs between conventional and insurable mortgages, and the rates are also quite different, along with the allowed amortization.

    To make this work for the client and stay in the realm of A-lending, we did the following:

    1. Refinance the vehicle and RV to access capital for down payment and lower the payments (sometimes we just need to lower the payments and not access capital).

    2. The client wanted purchase plus improvements, so the $95K of improvements increased the purchase price used by the lender, which is why we needed more down payment.

    3. The A-lender conventional mortgage options would not allow the amount of improvements needed.

    4. The higher mortgage amount, higher rental property conventional interest rates also impacted debt servicing along with lower rental offsets on conventional mortgages; we could not use an A-lender conventional mortgage.

    5. We changed to an insurable mortgage, which still has the 20% down payment, however, lower rates.

    Even though the insurable mortgage has a maximum 25-year amortization and a mortgage insurance premium, the lower rate and higher rental offset made the difference in keeping the client with A-lending along with the vehicle/RV debt restructure.

    Keith UtheMortgage Broker, Mortgage Alliance Enrich Mortgage Group

    Qualify Through Market Rents Appraisal

    There can be a lot of moving parts in investment deals. Recently, I had clients purchasing a new primary residence while converting their current home into a rental with a legal suite and upper unit. The lower unit in the current home was rented below market value. Tenants had been there for almost a year, with the lease about to expire, paying $1,300 a month. So, we did a market rents appraisal to show the greater value, and this put the property into a cash-positive position versus a liability. The appraisal showed the unit could rent for $1,600 a month and the upper unit for $2,800, making the total home rentable for $4,400 a month. This helped them qualify for the new primary residence with ease, while keeping their current residence and converting it to a rental property.

    Stacey Lush
    Stacey LushPartner, Mortgage Broker, Mortgage Connection

    Explore Crowdfunding Real Estate Opportunities

    Crowdfunding platforms have revolutionized the way we approach real estate investments by lowering the entry barriers for average individuals. This method pools smaller amounts of money from a large group of people, typically via the internet, to fund real estate deals, thus allowing investors to participate in the market with minimal capital. As a collective investment model, it offers the chance to back various projects and potentially reap the benefits of real estate growth without the need for large upfront capital.

    The success of crowdfunding lies in its power to connect willing investors with promising real estate opportunities. If you're looking to enter the real estate market, consider exploring a crowdfunding platform to see the diverse opportunities available.

    Secure Deals with Seller Financing

    Seller financing presents a unique avenue for securing real estate deals when traditional lending options are out of reach or undesirable. In such arrangements, the seller of the property acts as the lender, allowing the buyer to make payments directly to them over time, often with an agreed-upon interest rate. This method creates a win-win scenario, where the seller can move a property that might otherwise linger on the market, and the buyer secures financing without the rigors of bank underwriting.

    Seller financing can open the door to real estate ownership for those who might not otherwise qualify for conventional loans. If seller financing sounds like a suitable solution for you, consider reaching out to property owners who might be open to this arrangement.

    Mitigate Risks with Equity Sharing

    Equity sharing agreements offer a creative solution to investment property financing by involving multiple parties in the ownership of a property. Typically, this is a collaboration between an investor who provides the down payment and a resident who lives in the property and pays the mortgage. Through this partnership, both parties share the risks and rewards associated with property ownership, including potential appreciation and tax benefits.

    Adopting an equity sharing model can diversify risks and pool resources, making it an advantageous strategy for those unable or unwilling to shoulder an investment alone. If you're looking for ways to mitigate financial risks, consider partnering with others through an equity sharing agreement.

    Leverage Government-Backed Loan Programs

    Government-backed loans, like those offered by the Federal Housing Administration or the Veterans Administration, are designed to help first-time investors and homeowners enter the market with favorable terms. These loan programs often feature lower down payment requirements and easier credit qualifications, making them an attractive option for those with limited savings or less-than-perfect credit scores. By tapping into these resources, new investors have the chance to finance properties they might otherwise struggle to afford.

    Moreover, government backing provides lenders with greater security, often resulting in more favorable loan conditions for the borrower. If you're new to real estate investing, take the time to research government-backed loan programs that could facilitate your entry into the market.

    Profit from Short-Term Rental Arbitrage

    Short-term rental arbitrage takes advantage of the difference between long-term leasing costs and the income potential from short-term vacation rentals. It involves renting a property solely to re-rent it as a short-term or holiday rental, and when done correctly, it can yield significant returns. This strategy is especially successful in high-demand tourist locations or cities with a robust short-term rental market.

    Although arbitrage requires an understanding of market dynamics and commitment to managing the operational aspects of hospitality, the potential for rapid growth and high returns make it a compelling finance strategy. Are you ready to take advantage of the lucrative short-term rental market? Start researching potential properties to begin your short-term rental arbitrage journey.