How Multiple Investment Loans Work
Now that the stock market is showing its greatest weaknesses, more investors are seeking to grow their real estate portfolios. One of the ways that serious real estate investors build their portfolio is by purchasing multiple investment properties. This enables the savvy investor to create multiple streams of passive income that can sustain them in any economy. In practice, this means that they often hold multiple mortgages simultaneously. When you consider how hard it is for some people to get approved for a mortgage for their first home, you may marvel at how an investor can get approved for multiple investment mortgages.
Why Multiple Investment Loans are Desirable
Some real estate investors choose to purchase multiple properties with one jumbo loan. They feel that they save money on closing costs and origination fees, save time and also save the hassle of filling out applications for several loans over time. However, there are drawbacks to this strategy. If you have one jumbo loan, that means you have to make one big payment at the same time each month for all your properties. That can be daunting. And, if you default on that jumbo loan, you could lose your entire portfolio in one fell swoop. That would pretty much put an end to your real estate investment activities for a long time, if not forever.
It’s best to get multiple investment loans over time. This allows you to stagger your payments, which can be very convenient if one or more of your properties falls vacant at some point or another and you face challenges covering the mortgage on that property.
Multiple investment loans also minimize your risk. If you encounter a severe financial turn, you could even sell one property to cover your payments on all the other loans.
If things really get bad and you default on a loan, you’d lose only one property, and you’d still have the others to continue to bring you passive income.
How Multiple Investment Loans Work
Loans for investment properties are different than loans for primary residences. As such, the first thing you should know is that you need to go to a lender that specializes in investment lending. Assuming you qualify, that will take care of your first investment property loan.
Now, what if you have an outstanding mortgage on your own home, own an investment property and have a fair number of other loans, like credit cards and maybe a car loan? Would any lender approve you for a second investment property? Wouldn’t you be out of the running solely on the basis of your debt-to-income ratio? Not necessarily.
If you approach the same or another lender that works with real estate investors, you could get approved for up to nine more investment properties.
What Investment Lenders Look At
Investment lenders don’t focus on your debt-to-income ratio like standard primary residence lenders do. Instead, they look at your repayment history, your cash reserves and the prospects of the property itself.
In other words, investment lenders understand that you’re buying the property to make money. So they want to see that the property can make enough money to pay them back. They’ll ask to see—in addition to your financials—the financials for the property. They’ll consider the appraisal, the after repair value, the return on investment and more.
They may also want to know more about your personal skills and knowledge about real estate investing. They’ll want to see that you have enough money in the bank to take care of the property or to pay for your share of the rehab, if that’s part of the plan.
As you can see, investment lenders have a different outlook when it comes to the approval criteria. The bottom line is, you shouldn’t assume that you’d never be eligible for a second or third investment loan. Chances are, if you’ve handled your first investment loan well, an investment lender would be happy to consider your application.
It can be challenging to find good investment lenders in the sea of lenders online. At MartelTurnkey, we work with some very good investment lenders who understand the business of turnkey rentals. If you’d like to work with us and be put in touch with one of our go-to investment lenders, please don’t hesitate to contact us.