So you’ve decided to invest in rental real estate? At this point, you can place your money in short-term or long-term real estate investments. Short-term investments usually involve fix-and-flip properties that earn quick income. In comparison, long-term investments help you build your wealth in different ways. Before you go ahead and make an offer on a rental property, consider applying for a long-term rental loan.

Investing in Rental Properties

Investing in rental real estate might seem like a daunting prospect, but it doesn’t need to be. With a large enough down payment and a loan to cover the rest of the purchase price, you can buy a rental property with ease. While the fix-and-flip strategy is popular with investors, the buy-and-hold method can pay dividends. To pull off this strategy, you’ll need the right mortgage, which is where Long-term Investment Property Loans come in.

These loans are designed for rentals and assume that you won’t live in the property. While you can apply for standard loan programs, there’s a good chance you’ll be denied. Traditional banks often avoid investment loans.

You can use long-term rental loans to buy practically any type of real estate. While single-family rentals may be the most popular properties among investors, you can also choose to invest in:

• Multifamily homes
• Condominiums
• Manufactured homes
• Cooperatives

Comparing Long-Term Rental Loans vs. BRRRR

A buy-and-hold strategy is a lot different than BRRRR, which stands for buy, rehab, rent, refinance, and repeat. The main reason why you should invest in a rental on a long-term basis is because it allows you to collect rent, build income, and wait for the property to appreciate. You could even hold onto this property as part of your estate, which means that your kids might one day get it.

While the BRRRR method primarily involves flipping distressed properties that require substantial repairs, long-term rentals can come in any condition. With enough funds, you can buy a rental that’s immediately ready for tenants. Before buying any rental property, evaluate the building as well as the local housing trends.

What to Expect from Investment Property Loans

Long-term rental loans are mortgages that allow you to purchase investment properties. While these loans are riskier than traditional mortgages, lenders still offer flexible terms. Loan terms range from 10-30 years. A longer term comes with a lower monthly payment, which can be highly beneficial when you’re trying to increase your cash flow.

Before you apply for a Long Term Rental Loan, it’s a good idea to cover all your bases and make sure you meet the financial requirements. For example, you’ll need to make a higher down payment. Whether you buy a multifamily property or a single-family home, most lenders are going to ask for a down payment of at least 20%. If you pay anything below 20%, you might need to purchase mortgage insurance, which can eat into your profits.

You may also need to show proof of rental income, which shouldn’t be too difficult for you to get. Make sure you provide documentation in the form of a rent roll history, existing leases, and tax returns. This level of documentation is only possible if you have already invested in rental properties.

Your lender might ask you to show that you have mortgage reserves in the bank. Depending on the number of properties you currently own, it’s recommended that you have around three to six months of mortgage payments in your account.

If you’ve invested in rental properties before, some Long Term Rental Loan programs require a written explanation of your experience. You can qualify with rental income as well. Even if you’re new to investing, you can provide your lender with estimations of the amount of rental income you’ll earn.

Keep in mind that these loans can have high credit score requirements. Most lenders require a minimum credit score of around 640. Your chances of being approved for the loan will certainly be higher if your credit score is 700 or higher. In fact, this may be a requirement when investing in a multifamily property.

How to Apply for a Long-Term Rental Loan

Now that you understand everything there is to know about long-term rental loans, you can apply for one. First, shop around for the right lender. While interest rates for long-term rental loans can be somewhat high, getting multiple quotes allows you to make sure that you aren’t paying too much. Rates can vary considerably between companies. If you’re working with a real estate agent, ask them for recommendations.

You’ll then need to fill out a loan application. The process is straightforward. Make sure you provide proof of your income to avoid having your application rejected. Two months of bank statements and rental information should be enough. Every lender has its own application system.

Consider paying for an investment appraisal as well. This process details the amount of rent that owners collect from similar properties in the vicinity. An investment appraisal may be exactly what you need to have your loan application approved. Lenders are most interested in the amount of rental income nearby properties generate.

Once your loan is approved and the appraisal is finished, take a look at your closing disclosure. You should receive this document within three business days before the closing date. Thoroughly read it to make sure every piece of information is accurate. Long-term investment loans sometimes come with “guaranteed interest” or prepayment penalty guidelines, which you should understand before finalizing the transaction. Regardless of how fast you repay the loan, most lenders want to earn a specific amount of interest.

It’s time to gather the funds needed to pay for the closing costs, which you can do with a cashier’s check or electronic payment. After signing the mortgage closing paperwork, the property will be officially recorded in your name. Congratulations on owning a long-term rental property!

Long Term Rental Loans are perfect for investors like yourself who want to hold onto properties and bring in monthly income. You can repay the loan in anywhere from 10-30 years, which gives you time to build your wealth or save for retirement. Get in touch with us today if you have any questions about this type of loan and how to apply for it.