Unlocking Wealth-Building Opportunities: Reasons to Refinance Your Rental Investment Property
Are you looking into ways to achieve the maximum financial benefit from your rental property investment? Refinancing with a private lender may be the answer. Refinancing can provide a number of benefits, including obtaining more funding, lowering monthly payments, and the opportunity to invest in other properties by leveraging your equity. In this article, we will discuss reasons why refinancing your rental properties can help you unlock wealth-building opportunities!
How do I refinance my rental property?
Refinancing an investment property with a private lender is simpler than refinancing a home loan. As every loan scenario is different, it’s always best to work with an experienced real estate investment lender and broker like GoKapital, that can provide you with the best options depending on your needs. Here are some recommendations when considering refinancing:
- Ensure that your property has enough equity (usually a balance of less than 70% if you have a loan)
- Prepare basic information/documentation regarding the property
- Present your loan request to a lender to obtain a pre-qualification
- Work with one lender/broker to minimize credit inquiries.
Refinancing can provide you with much-needed liquidity which can be used for a variety of purposes, including paying off high-interest loans or credit cards; making improvements on the rental property such as installing new windows and upgrading appliances; fixing up the home you plan to sell; consolidating credit card debt or have cash on hand for investment opportunities.
Can I refinance my investment property even with bad credit?
The simple answer is yes. Refinancing an investment property with a private lender will increase your approval chances. That said, rates and terms will likely not be comparable to those of a bank. However, if you have a higher credit score the terms will be more favorable.
Refinancing your investment property is all about making the numbers work!
When you refinance an investment property with a private lender and mortgage broker like GoKapital, you’ll need minimal paperwork than working with a bank and will receive the best approval terms you seek. Most conventional/bank lenders require that you have two years of positive cash flow from rental properties or other investments before they will consider refinancing. Private lenders, however, are a lot more flexible in terms of structuring your cash-out refinance transaction.
Advantages of refinancing your investment property loan with a private lender
There are many advantages to refinancing with a private lender. First, their underwriting guidelines are much more flexible than banks, and they also have fewer requirements than traditional lenders.
Secondly, they have fast pre-approval times that can be completed in as little as one or two business days! Also, you'll find that your refinance will require less documentation compared to other loan programs. Finally, there is no minimum credit score required to qualify.
If you're wondering, you don't need to hire a real estate agent.
What do I need for my refinancing?
When you refinance your investment property with a private lender, they will primarily focus on the following:
Location of the Property – Is it in a desirable market area with stable/rising property values?
Type of Property – Typically, single-family homes are easier/faster to approve (depending on the condition and if there are tenants). For commercial properties, it will depend on the type of real estate and its purpose (for example, a warehouse, office building, retail location, etc.). Vacant land is usually not a preferred asset class by private lenders and may be more difficult to finance. The type of property is important since private real estate lenders tend to focus more on the asset itself.
Investment Experience: Non-conventional private lenders will typically offer more favorable rates to investors with a history of previous real estate transactions. Therefore, having this transaction readily available will help you when applying.
The capacity of Repayment: Tax returns will not be required in most cases, but bank statements are usually requested in order to determine the borrower’s capacity of repayment.
Recent Mortgage Statement: If your property has an existing loan, you’ll want to have a recent loan statement available showing the balance and payment history.
Rent Roll: If the property has multiple units with tenants and is generating income, a rent roll will be required in order to demonstrate the property’s monthly income.
Copy of Recent Credit Report: Although private lenders will focus mainly on the asset, borrowers with better credit scores will receive better rates and terms than those with lower scores.
What about the interest rate?
Your mortgage rate may be slightly higher than conventional loans, but it's important to understand that your monthly payment will likely be lower. This can make a huge impact on how much money is coming out of your pocket every month and how much you're paying towards your principal balance.
Interest only vs amortized loan
While amortized loan payments include paying on both interest and principal, interest-only loans offer lower monthly payments because the borrower is only paying on interest. This is ideal for fix and flip investors that intend on selling the property in a few months, and want to minimize their holding costs. However, because an interest-only loan has no principal payment until it is paid in full, the balance must be paid off at some point. This might be done in a single lump sum or through conversion to an amortizing loan with bigger monthly payments that go towards both the principal and the interest. Or in the case of most investors, you can sell the property before the loan maturity.
Are there any prepayment penalties?
In most cases, short-term fix and flip loans ( with 1 or 2-year terms and interest only payments) will not have prepayment penalties. On the other hand, rental property investment loans with terms up to 30 years may have a prepayment penalty during the first 5 or 7 years of the loan. Typically, the penalty is on a sliding scale, meaning that it decreases each year during the first 5 or 7 years.
What about closing costs?
Closing costs are similar to the ones you would encounter when buying a home. These include lender origination fees, appraisal fees, title insurance premium, and closing attorney's fees. These can range from 3% – 6% depending on the state where your property is located. Furthermore, it’s important to note that if there are other loans on the property, such as a home equity line of credit or an outstanding mortgage payment, you might have to pay these off before closing. Taxes, and if applicable, real estate agent fees, would also be included.
Are you ready to refinance your investment property?
Apply with an experienced real estate investment lender and broker like GoKapital, and you’ll receive:
Free Consultations with Knowledgeable Loan Consultants
Access to a variety of loan programs
Quick pre-approvals and an easy application process
Financing from $100,000 to $50,000,000 nationwide
No upfront costs
Hassle-free closings on your transactions
The process of refinancing an investment rental property can be tricky. You have to decide on the right type, time, and program for your situation. Cash-out Refinance is a great way to get your money back if you want to sell or refinance your investment rental property.
The process of refinancing an investment property has many benefits for the investor, but it can be overwhelming if you don't know what questions to ask. If this is your case, call GoKapital today! Our team will work with you through every step in the process and answer any question along the way so that you're confident when making decisions about how much equity to take out on your property. If you are ready to move forward you can also apply online.