Posted in Are you looking to start building your property empire? Following please find a few tips to help get you started:
Be selective about your lender
If this is your first investment property, don’t try and find a lender on your own. Instead, work with a mortgage broker who has experience in the investment property arena (that would be me!).
This is because a borrower’s ability to qualify for an investment property rental often depends on how much rental income the lender recognizes. Known as the “total debt ratio”, this number is generally the sum of your total monthly expenses divided by total monthly income from all sources, including rentals. Of course, each lender calculates total debt ratio slightly different – this is when a mortgage broker can be extremely helpful. Their job is to help you find lenders to fit your needs and circumstances. If your qualifications aren't quite "perfect", you’ll need to find a lender that is open to negotiating underwriting exceptions, a difficult task if you’re not familiar with the market.
Don’t get greedy
It’s worth noting that most lenders prohibit you from owning and/or financing multiple rental properties. While it’s not explicitly forbidden, it certainly increases your risk, making you a less than ideal customer for lenders. This often results in investors with big rental portfolios being forced to renew mortgages with their existing lender at unfavorable rates and terms.
The moral of the story? If you’re planning to build your own rental empire, be careful. Work with a mortgage broker who has experience working with clients with 10 or more investment properties (That's me again). I know which lenders to talk to, and which ones may just waste your time.
Rates aren’t the only thing to look for
If you happen to stumble across an exceptionally low rate during your rental property mortgage search, don’t assume that it’s the best option. Now that new legislation is in place, lenders with the best rates often have the tightest rules and restrictions. The most flexible mortgages usually cost more, especially in the world of investment properties. Expect to pay more if you need a lender and mortgage that satisfies one or more of the following criteria:
- Offers flexible rental income rules
- Allows for a line of credit with your rental mortgage
- Lets you put a rental property in a company name for liability protection
- Doesn’t impose a minimum net worth requirement
- Will lend large mortgages
- Allows you to add a second mortgage
- Allows lengthy amortization periods to maximize cash flow
Another key point often missed is the order you should utilitize the lenders that have an appetite for rental property financing. Some institutions will only allow you to own a certain number of properties, regardless of whether the mortgage is held by that firm or not. So choose, but choose wisely! (Sorry, couldn't resist - just watched that movie again with my kids the other night......)
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