Small investments can make for big changes in your life when it comes to finances. There are a number of ways that you can still offset the risks of getting into the rental business, while still grabbing ahold of the chances it provides for success.
Those who watch the market are predicting that consumer confidence in the economic recovery combined with actions of the Federal Reserve are pushing interest rates back up. How is this? To put it simply, the Federal Reserve buys mortgage related bonds, as well as other long-dated government bonds. That forces down long term interest rates. However, even just expecting the Federal Reserve to start the taper of the bond buying has shown some yields to rise and as a result, bond prices to decline. This is only part of why interest rates may yet again go up, and why if you’re considering financing a rental property, now may be a good time to do it.
Diversifying, or broadening your rental properties is a smart thing to do, in most cases. Financing a rental property, however, can be hard if you don’t have certain things in place to begin with.
Does this have an impact on refinancing the loans on your properties? It may. However, it’s important to note that as the interest rates rise, so, too, will mortgage rates. Though most analysts consider that the interest rate rise will be gradual, it is rising and the best way to offset your risks is to be prepared.
1. Make sure your business credit is accurate, and at least 75 or better. If your rating is lower, you can still finance a rental property, but you’ll likely be subject to fees and other things that make it more expensive.
2. Have a solid down payment. Look at about having anywhere from 20%-30% up front. When you don’t have to borrow as much in relation to the value of the property, you have a much better chance of getting financed. Also remember, you can draw on the equity from your existing properties to use as a down payment for the new one.
3. Choose your lender wisely. If you go with a national bank, the odds are pretty good they won’t know your market. Because of this, if your credit isn’t pristine, or you don’t have a large down payment, you may be turned down. Your local lenders are more apt to not only know your history in the area, but also the market. Additionally, they tend to be more involved in local business- this is actually in most local lenders’ charters. So, your local lender may be the best way to go. You can also look at mortgage brokers. They’re a lot more flexible than banks tend to be and they also use a variety of products for lending.