So you’re ready to invest in your first rental property, but you don’t have all the cash lined up that you need. This is where financing can come in handy, but it might not be as easy as you think to get your hands on the money. It can be an overwhelming situation, and not one that you should tackle lightly, but if you take the right steps, it can be a very lucrative decision that could pay off big time. If you’re ready to get financing for a rental property, there are some tips to keep in mind that can help make your dream happen.
Decide what you’re going to do with the property
There are several types of rental properties you can buy, including an already existing house or one that’s pre-construction, the latter of which means you could be involved in the design of the home. You should also decide if you want to buy a fixer-upper or a home that’s already in good condition. The former will require more of a time and money investment up front, but it could be worth it in the long run.
Do your research
When you’re looking into buying a rental property, it’s not as easy as coming across one you like and going for it. Do research first into the surrounding area to check out the real estate market, especially if you’re only going to be keeping the property a short amount of time. Chances are you’d rather make money on it should you decide to sell the home in the future – or at least break even – but you certainly don’t want to take a big risk and end up losing out on money.
Go over your credit report
When you’re applying for financing, one of the biggest indicators is going to be your credit report. Before you do anything, go over your credit report and check for any discrepancies that you have to take care of. While you’re at it, start making moves to improve your credit score if you find it’s a little too low for your liking.
Get your paperwork together
You’re going to need quite a bit of paperwork when you’re applying for financing. For example, you’re going to need several months worth of bank statements, your pay stubs, savings accounts, several forms of identification, and a few year’s worth of tax returns. In some cases, copies or printouts won’t do, so if you can hand over the originals, that’s even better.
Gather the down payment
The bigger of a down payment you can hand over, the better. Mortgage insurance doesn’t cover investment properties, which means you can forget about the typical 10 percent and start thinking more into the 20 – 30 percent range.
Get pre-approved before you shop
Getting pre-approved can be a huge asset for you when you apply for a loan. It gives you more credibility and shows that you’re really serious about the transaction. It can also be helpful so you know the numbers you’re dealing with and how much you can afford to spend without going over budget.
Choose the right professionals
When you’re going for financing for a rental property, you’re going to need a slew of professionals to help you with the process. You’ll need a realtor, an attorney, and an account, all of whom should have experience with investment properties. It’s a whole different type of investment, and they should have the background and qualifications to be an asset to you, especially if it’s your first rental property. If you don’t know where to start, put the word out to friends and loved ones who can give you personal recommendations for professionals that can help you.
Although going for financing for a rental property can seem daunting, don’t let it stop you from going for what you want. With careful research, effort, and planning, you’ll be able to get started on the process and be successful with your endeavor.