Tips For Financing Your Investment Property

February 27th, 2024

Navigating the complexities of financing an investment property can be daunting. However, with the right strategies, you can secure the best possible interest rate, enhancing your investment’s profitability. MartelTurnkey has access to a pool of lenders who we will introduce you to, to ensure a smooth and speedy transaction when you buy a turnkey property through us. In the meantime, here are some invaluable tips to guide you through the process of financing your investment property:

Consider a Conventional Loan For Investment Property


Opting for a conventional loan is a solid starting point for securing financing with a lower interest rate. Conventional loans aren’t backed by the federal government, offering more flexibility and potential for multiple property financing. You may be able to buy up to ten investment properties with conventional lending. To qualify, you’ll need steady employment, verifiable through a W-2 or two years of tax returns if self-employed, and a good credit score. This type of loan is highly recommended for real estate investments, hailed by Warren Buffet as the “best ever” vehicle for real estate investment. 


Choose the Right Conventional Lender


The lender you choose can significantly impact the interest rate of your conventional loan. Not only is it important to choose a lender with experience in the state in which you’re buying; since these loans are sourced from the private sector, rates can vary widely. Make it a priority to work with a lender who not only offers competitive rates but also understands the needs of out-of-state investors and prioritizes customer service. Also, a lender focused on volume over large commissions will likely offer lower interest rates, which can greatly increase your cash flow.


Leverage Interest Rate Buydowns (aka Points)


An interest rate buydown (also known as points) can substantially decrease your loan’s interest rate for its entire duration, not just the initial years. By paying points upfront, you can secure a permanent reduction in your interest rate, enhancing your property’s cash flow from the start. This strategy does require a small but higher upfront cost, but offers benefits over the life of the loan, making it a powerful tool for investors aiming for maximum cash flow.


Increase Your Down Payment


The amount of your down payment plays a large role in determining your interest rate. While larger down payments require more upfront capital, they lead to lower interest rates and increased cash flow. Many investors find a 25% down payment to be the sweet spot, balancing upfront investment with lower ongoing costs. Adjusting your down payment based on your financial goals and market conditions can optimize your investment’s performance. Ask your lender to give you a few options with different down payments.


Negotiate Purchase Price to Your Advantage


This one is not related to a MartelTurnkey house which is generally under $200,000, but in the entire real estate realm, the purchase price of your property can affect your interest rate. Contrary to what you might expect, higher-priced properties can sometimes come with higher interest rates. This is because larger loans are more likely to be refinanced if interest rates drop slightly, which lenders may try to counteract with higher initial rates. Therefore, investing in properties with lower purchase prices might not only require less capital but could also offer better financing terms, enhancing cash flow. 


Exploring Asset-Based Lending (DSCR Loans)


Another strategic financing option for investment property is through asset-based lenders. This approach diverges from traditional lending criteria, focusing primarily on the value of the assets you’re financing rather than your income or credit score. Commonly known as DSCR loans, asset-based loans can be particularly advantageous for investors who may not meet the stringent requirements of conventional loans or who seek flexibility in their financing options. These lenders assess the investment property’s potential income and the investor’s overall asset portfolio to determine loan eligibility and terms. This method can offer quicker access to funds, with less emphasis on personal financial history, making it an excellent option for those with strong investment opportunities but less conventional financial profiles. Asset-based lending can complement your financing strategy, providing a viable pathway to securing investment properties with terms tailored to the asset’s value and potential return. It’s a powerful tool for investors looking to expand their portfolios with agility and precision, especially in competitive real estate markets where speed and flexibility can be key to securing prime investment opportunities.


Securing financing for an investment property is a critical step in building a successful real estate portfolio. No matter which lender you choose, it’s important to work with a lender who is an expert in investment properties in the state where you are buying. 


By carefully selecting your loan type, lender, and financing strategies, you can significantly reduce your interest rate, boosting your investment’s profitability. You won’t be left to figure out financing on your own when you choose a MartelTurnkey investment property. We’ll connect you with a list of lenders who  understand our business and with whom we’ve built a relationship in order to make your financing go as smoothly as possible. Contact us today to get started.

Leave a Reply

Your email address will not be published. Required fields are marked *