Types of Loans for Landlords

Whether you’re diversifying your investment portfolio, hedging against inflation, or simply trying to establish a passive income stream, investing in real estate offers many key advantages.

In most cases, real estate investors have to spend money to make money, and unless they’re sitting on a stockpile of cash, they often need to borrow capital and secure financing to get a foothold in the market as they’re learning how to build a real estate portfolio with rental properties.

4 Rental Property Loans Designed to Help Investors Scale

All real estate investors want to know one thing – what type of rental property loan is best when it comes to scaling an investment portfolio?

Fortunately, there are several types of investment property loans for landlords, and a seasoned real estate investor will take advantage of all of them as needed, depending on the situation.

Here are four of the most common investment property loans for landlords.

1. Conventional Loans

Taking out a conventional mortgage is the most common way real estate investors buy new investment properties to expand their rental property portfolios. Using a conventional loan for investment property is different than a traditional loan for non-investment properties, and the loan requirements are different as well.

  • The down payment of a conventional loan is likely to be around 20%.
  • Most hard money and private lenders require a high credit score and solid credit history.
  • Generally, this loan type will provide the lowest interest rates of all loan types.
  • Documentation will be more intense and will take longer.
  • Be prepared to show liquid assets that equate to six months’ worth of payments.

Note that there is a limit to how many conventional loans one real estate investor can have at any one time. Often, investors who hit this limit move to the other types of loans for investors we’re about to discuss.

2. DSCR Loans

DSCR loans are a great financing option for both experienced and first-time real estate investors. They allow investors to finance investment properties without using their personal income to qualify, because DSCR loans are asset-based.

Property values and rents have increased steadily over the past two years, making DSCR loans a more popular option for real estate investors and landlords.

Private lenders like Lima One offer DSCR loans for long-term rental property holds as well as short-term rental financing specifically designed for Airbnb properties, VRBO rentals, and vacation homes.

3. Portfolio Loans

Portfolio loans are common for rental property financing. These types of loans include mortgages on multifamily investments or single-family properties held by the same lender.

Investors can save on fees by financing multiple properties under a single loan, called a portfolio loan.

Portfolio loan financing is a great way for investors to scale their portfolio. Investors can access the equity in other properties within the portfolio through a cash-out refi and then use that money to purchase additional properties.

4. Hard Money Loans and Private Lending

For many new real estate investors and landlords who don’t yet have the capital for investing in rental properties, a hard money loan can remove the barrier from buying and renovating a property by providing fast and relatively easy access to funds.

Hard money lenders provide short-term loans using investor assets as collateral. Traditional long-term rental loans have a longer approval process that can delay investors. Hard money loans are the opposite.

With a hard money loan, the approval and qualification processes to secure financing for real estate investments are faster compared to other types of loans for real estate investors – with an approval decision coming in the same day. But this convenience comes with higher rates and fees. Hard money loans are a solid option for investors interested in fix and flip investments or the BRRRR method.

While some hard money lenders are individuals or small companies, the residential real estate investment niche has matured with private lenders like Lima One. These experienced private lenders offer many of the speed and convenience advantages that hard money provides, but with more reliable closings and better transparency and service through the process. Investors and landlords considering hard money lenders should investigate private lenders as well for their next rental property investment.

What Rental Property Loan Type is Best for You?

Real estate investment strategies are going to vary from investor to investor but working with the right lender is the best way to ensure that your financing options are tailored to your strategy. Often, landlords will start with conventional loans for their long-term and short-term rental property investments and then move to another strategy as they scale.

Lima One Capital is the premier lender for real estate investors, and we have created a full suite of loan products, with real estate investor loans and financing solutions for every investment strategy.

We offer the best loans for real estate investing from simple bridge loans, rehab and fix & flip financing, and long-term stabilized multifamily loans to the most complex structured finance solutions.

With a nationwide presence as a trusted private lender, we offer a robust suite of products designed to help every investor regardless of their investment strategy. As the premier lender for real estate investors, our goal is to help investors scale their business and close deals quickly.

Contact us today to discuss your next deal, or if you have a deal in hand, accelerate the process by applying now.