6 Tips to Find Financing for Buying Rental Property

Overcome the challenges of financing rental properties with the following real estate investing tips for landlords.

How can landlords find financing to purchase rental property in today’s lending environment? Financing investment properties can offer its challenges for real estate investors looking to grow their rental portfolios. Below, you will find 6 tips to find financing for buying rental property in North Carolina and other states.

Create a Strong Credit Score

Prior to seeking rental real estate financing, make sure to check your credit score. Even when a lower credit score does not prevent you from obtaining a mortgage loan, you will likely pay more for that loan which could affect the profitability of your rental home purchase. Taking a few steps to improve your credit score in the early stages of your rental real estate investing journey will pay off big in the long run.

Save for Down Payment on Rental Properties

In today’s lending environment, most loans for investment properties require a down payment of at least 20%. In addition to that 20% down payment, real estate investors may also need to show proof of reserves that could be used to cover mortgage payments for a specific amount of time. Start a savings plan now to ensure you have the required funds and can position yourself as a strong borrower for rental property financing.

Show a Strong Rental History as a Landlord

Do you own other rental homes in North Carolina? Often, if you can show a lender a two-year history of managing rental property successfully, the lender will allow you to offset the mortgage payment on the rental property you are buying with the expected rental income minus 25 percent for vacancy and expenses. Working with a property management company in North Carolina to keep your properties filled with quality tenants who pay rent, will make it easier to find financing than if your existing homes are vacant and not producing income.

Find a Lender with Real Estate Investment Financing Experience

Financing rental properties is not the same as financing owner-occupied residential properties. Keep this in mind when you are interviewing loan officers and mortgage brokers about rental property financing. Your best bet for achieving success and meeting stricter guidelines is to work with someone who has proven experience helping real estate investors find rental property financing.

Seek Out Seller Financing

Want an option for buying rental properties without going through the traditional lending process? Owner financing could be the option you are looking for the next time you buy rental real estate. Do not just ask if a seller would finance the sale of the rental home. Instead, approaching a seller with a specific plan (e.g. “x” amount of money at “x” terms) is the smart way to discover if seller financing is something the homeowner would consider.

Toss out Traditional Rental Property Financing Options

This last tip to find financing to buy rental property steps outside the box and tosses out traditional financing options. These approaches are often riskier, so always do your homework to increase your chances of buying profitable rental properties. If you don’t have a down payment, you could use credit cards (balance transfer checks with 0% interest for a set term is better than a high-interest cash advance) or a home equity line of credit. To obtain a loan to buy rental properties, you could utilize peer-to-peer lending sites like Prosper.com and LendingClub.com which will match you with an individual willing to loan you the money.

Have other questions about rental property investing or tips for protecting your rental property investments? Make sure to read the other helpful articles in our Landlord’s Guide. Want to talk to a Red Door Company property management expert about how we can help you buy North Carolina rental properties or manage your income properties? Contact us today. We would love to help you succeed as a real estate investor.