Before you can consider whether or not you’re ready (or want) to pursue new real estate investment opportunities, there are some minimum qualifications you need to meet. We will quickly walk you through those before highlighting your next steps.
When considering buying a new real estate investment, the first question should always be: Do you qualify? Some key investment property loan qualifications include:
• Minimum 25% Down Payment: Many investment lenders have a max LTV of 80%, and that is for the highest credit score tiers.
• Minimum 680 Credit Score: Most investment lenders have a minimum credit score of 680 with better rates and terms for higher credit.
Lenders use credit score, as one of many factors, to determine a borrower’s ability to pay back a loan. LTV indicates to lenders how much skin in the game a borrower has and also serves as a safety cushion. If your credit score is not up-to-par, check out our tips on improving credit. For those investors without enough cash on-hand to invest, learn more about tapping into your existing equity to build wealth.
Investors with strong credit and reserves, continue down our decision tree for more guidance on this being the right decision for you. While this decision tree is here to guide you, we always recommend consulting your counsel for any new investments.
Hold forever or sell at the right time; A dramatically simplified qualification process
Underwritten using short-term rents; Ideal for business owners and self-employed borrowers
From a financial perspective, you need to evaluate both unexpected and expected expenses.
• Down Payment: 25% minimum of the property value
• Closing Cost:
- Loan Fees
- Appraisal Fee
- Broker/ Real Estate Agent Commission of Fees
- Attorney or Title Fees
• Home Inspection: $500
• Property Taxes
• Vacancy: Prepare to pay for your mortgage and expenses for a period of time without a tenant
The next piece is the work associated with ongoing property management, including tenant screening, rent collection, maintenance, etc. You essentially have three options:
If you have your finances in order and have a game plan for the management tasks, then it makes sense to purchase an investment property. Remember to consult your counsel for any personalized legal or financial guidance.
Congratulations on considering your second investment! If you’re here with us, we know your credit and cash reserves are in a strong place. Now, let’s dive into the next round of considerations.
• Geography: If you have a specific location in mind and a market you know well, then you are in a strong place. If not, geographic research and identifying a profitable market are of the utmost importance. As a starting point, we’ve compiled a list of the best cities to invest in 2022.
• Cash Flow: If your existing property is cash flow positive, then financially it makes sense to expand your portfolio. However, if your mortgage is higher than your expense, there are some adjustments you can make to be cash-flow positive.
• Time: Managing an investment property is very time-consuming. Consider your availability and any property management software or automation you can put in place to make the process as seamless as possible. Also, evaluate hiring a property manager.
• Financing: Do you have a lender in place? Learn more about Visio Lending’s Loan Programs to see if they meet your financing needs.
• Insurance: Landlord Insurance is a critical piece to growing a portfolio and making sure your investments are protected. See our Complete Guide to Landlord Insurance for assistance.
This is a basic overview of some of the key factors to consider as you grow your rental portfolio. For more guidance, be sure to talk to your counsel and consult one of our professionals.
So you are considering buying an additional investment property. Whether it is your third or fifteenth, it is important to consult your counsel to make the best decision for you. In addition to reviewing all of the factors from the first two decision trees, also consider your equity and liability?
Visio Lending offers nationwide rental lending throughout most of the United States.
Visio Lending is more than just a lender, we’re a partner who’s invested in helping you expand your portfolio.
Learn more about who we lend to, borrower and property requirements, and our process.