3 Investor Financing Options

Written by Hannah Lapin | Oct 1, 2019 2:00:00 PM

Many casual real estate investors finance their SFR rentals through traditional consumer mortgages, often transitioning these properties into long-term or short-term rentals. For those considering the lucrative market of midterm rental properties—accommodations ideal for tenants needing housing for several months but less than a year—different financing needs may arise. As a professional investor looking to diversify or grow your portfolio to include such properties, you have three main financing options: agency loans (Fannie/Freddie), local banks, or alternative lenders like Visio Lending, each offering distinct advantages for different types of rental strategies. Let’s explore these options and how they can be tailored to support investments in the growing segment of midterm rentals:

Agency Loans (Fannie and Freddie)

Agency loans are the least expensive type of loan, yet the most complicated to obtain. Lenders typically underwrite agency loans based on a holistic review of an investor’s cash flow, including income from stable employment and rental properties. These loans have some drawbacks for investors including:

Substantial documentation
Lengthy and uncertain underwriting process with substantial reserve requirements that increase with the number of loans outstanding (Basically, the more mortgaged rental properties you own, the more cash reserves you need)
LTVs that decline with the number of loans outstanding (the more mortgaged rental properties you own, the more money you must put down for each new property)
Restrictions on cash-out refinances
Inability to borrow in an entity

Regional Banks

Some real estate investors have success financing their rental properties with local or regional banks who retain the loans in their portfolios. Because banks plan to retain loans rather than sell them, they can be more flexible on underwriting in exchange for higher rates and fees. Banks, however, cannot portfolio 30-year loans, so they typically write five-year loans on 15, 20, or 25 amortizations. Some of the drawbacks of working with a bank are:

Exposure limits typically mean an investor will have to line up multiple local banks to finance a good-sized portfolio
Uncertainty; local banks often change direction quickly in response to their most recent regulatory review. This means they might be in the business of financing rental properties one month and then not the next month
Local banks are not set up operationally to originate mortgages in high volumes and tend to work slowly

Visio Lending

Visio Lending’s loan programs are designed to help real estate investors grow their portfolios of SFR rentals. We underwrite our loans based on credit score, including depth of credit, LTV and property level cash flow (DSCR). Buy and hold investors love working with Visio because of our:

Low document requirements: No personal income statements or tax returns
Transparent pricing and product guidelines
Fast-closing times

Check out our blog post, "Guide to SFR Real Estate & Types of Loans" to learn more about financing in the single family residential space. Check out our Visio Box Resources Page to learn more about how Visio tailors our loan programs to meet the needs of investors.

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