As the long anticipated interest rate cuts have finally arrived, mortgage activity has seen a massive boost, with both buyers and investors looking to take advantage of lower monthly payments. Mortgage application numbers have already started rising, with a nearly 60% jump in mortgage refinances in the week leading up to the fed decision. If you are a broker or lending partner, you can expect increased activity across the board for all real estate asset classes, but especially so for rental property investments. Knowing how to capitalize on the increased activity can lead to massive wins for real estate lenders.
In this piece, we’ll break down why rental property loans will be the key to your success in the coming months, and how you can best position yourself to take advantage of the increased volume to grow your lending business.
Why Rental Property Lending is a Massive Opportunity
Rental properties have always been a reliable source of investment returns, and demand is only expected to increase with lower interest rates. They are a preferred strategy for investors who prefer a more hands-off, long-term approach to real estate, and can even provide passive income through hiring a property manager. With lower interest rates, the margins on these investments become even more attractive, as even a modest drop in monthly expenses can lead to much greater returns. And with more rate cuts expected to happen before the end of the year, margins will only improve, as will the demand for rental property investments.
How Rental Loans Help Brokers Grow Their Businesses
There are a few key reasons why rental property loans are a crucial offering for real estate lenders. For starters, rental property investors rarely stop at just one property. They frequently go on to seek out refinance loans, or grow their portfolios by leveraging the equity they have built in existing investments. Additionally, each closed loan helps build trust with clients, turning you into a long-term investment partner. This puts you in a great position to become a client’s “go-to” advisor, and opens the door to you shaping their future strategy. That can include multifamily or portfolio loan opportunities, and even pivoting to other projects like home flips or new construction.
The Advantages of Offering Rental Property Lending
Rental property lending also provides many advantages when compared to other loan types. These programs help lenders establish a steady and predictable pipeline, and offering private loans such as DSCR programs means you can fund deals even when banks or traditional lenders say no. This helps you build client loyalty, and puts you in a great position to benefit from repeat business. DSCR loans also offer you a competitive advantage; they can close faster and have less stringent requirements than conventional mortgages, which is key in today’s fast paced real estate environment.
That’s not to say that you shouldn’t offer other types of loan programs as well. A diversified product offering is the best way to create a robust loan pipeline that is more resistant to downturns in any given asset class.
What Brokers Need to Know About Rental Property Loans
Let’s cover some of the most important aspects of rental property lending that every broker should know before offering these programs:
- The investors who seek out rental property financing are generally seeking out either cash flow or appreciation from their investments. Be sure to ask these questions when you begin working with new clients. Understanding your borrower’s profile helps you match them with the best financing options.
- There are a few types of rental property loans, ranging from conventional mortgages to DSCR and multifamily loans. There are also portfolio loans, which are designed to group multiple properties into a single loan structure, which can help simplify monthly payments and reduce loan fees.
- There are also underwriting details to consider before submitting a loan to a wholesale partner. Most lenders use Debt Service Coverage Ratio to vet deals, or how much of the property’s total monthly debt is covered by rental income. This amount should typically be 1.00 or higher to qualify for financing. Besides that, the borrower’s track record and credit score will play a role in shaping loan terms, but are not as important for determining loan approval.
Positioning Yourself as the Go-To Broker for Rental Investors
In order to boost your pipeline and grow your client base of rental investors, you’ll need to implement some effective marketing strategies. It isn’t just about being a financing provider, you should also offer additional services such as local market insights, deal finds, and advising on investment strategy. Social media, and particularly LinkedIn and REI groups on Facebook, can be a great place for promoting your services. For example, you can share educational content about the long-term wealth building benefits of rental properties to strengthen your credibility in the space. Building an email list of previous clients, and reaching out to them regularly, also helps you stay top of mind when the time comes to finance new ventures.
Last but not least, be sure that you partner with a trusted wholesale lender that can help you effectively finance these deals. A quality partner will understand the needs of your rental clients, value communication and responsiveness, and have programs designed to quickly fund investments. Ideally, you will want to work with a lender who goes above and beyond, such as those that offer marketing or educational materials for their financing partners.
RCN Capital
To help your clients maximize the returns on their next investment, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer rental property financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.