Tips for Financing Your First Long-Term Rental Property

As a first time long-term rental buyer, you’re probably wondering what to expect with your investment property. By following these tips, you can strengthen your strategy and before you know it, start producing income. Here’s 5 tips for financing your first long-term rental property.

Explore Your Loan Options

When financing your first long-term rental property, there are several options to choose from. Many investors tend to choose between conventional loans and hard money loans.

Conventional loans are backed by individual lenders, such as banks and credit unions. Depending on the guidelines of your conventional loan, it will be determined whether your loan is conforming or nonconforming. A conforming loan adheres to the federal guidelines of Freddie Mac and Fannie Mae, while non-conforming loans do not adhere to any federal requirements.

On the other hand, hard money loans generally will not adhere to any federal guidelines as these loans are backed by the collateral of your property. Often, hard money loans are used by high income investors who can pay them back quickly. These loans will provide financing much quicker, but the downside is interest rates overall tend to be higher.

Think About the Location

Like with any property, the location matters when financing your first long-term rental property. When determining where to purchase your property, think about the expected growth in the local neighborhood. You should research the surrounding area to see if there are any new developments being built- a newly built school or office park is promising when tracking down long-term renters. The more local amenities a property has, the more attractive it is for renters.

Decide on a Down Payment

Investment properties usually don’t have access to mortgage insurance, which is something to consider when setting an amount for your down payment. Smart investors are not afraid to put down a large down payment; doing so improves your monthly margins and gives borrowers more confidence in your ability to borrow. Although it’s not necessary to have a hefty down payment, it can improve your investing strategy, especially as a first time long-term rental buyer.

Look into Off-Market Properties

It’s common for first time long-term rental buyers to forget that they’re not limited to buying properties for sale on the open market, there are many off-market properties that you can place bids on too. Off-market properties are ones not listed on multiple listing services, but instead are sold through word of mouth and direct marketing. In some cases, an off-market property may be more flexible when it comes to closing terms, but doesn’t always guarantee a better deal. When housing inventory is limited, off market properties can help you leverage yourself in the market.

Create a Long-Term Strategy

Like any investment you make, you should always have a long-term strategy you can fall back on. In the market, nothing is set in stone. You may face some unpredictable events, and if you want to be a savvy investor you need to be prepared for any situation. Before purchasing your first long-term rental property, think about your long-term strategy and the goals you wish to accomplish with the property. Even though it may be early in the game, consider your available exit strategies and set limits to your investment. Having a defined strategy can help you to balance risk and generate more profits.

RCN Capital

RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs.Connect with us todayto discuss your next real estate investment.