Hole in One: Finding Opportunity within Rate Hikes
I would like to think I’m a good golfer but that would be totally delusional on my part. Fishing is another activity that I enjoy as well as amateur carpentry and working on cars. All these activities, on face, seem very incongruent but they do have one particular attribute in common – they all require specialized tools for success. Whether it’s the right clubs, the right pole and tackle or the right wrench set, your success can be constrained by not having the right devices to execute.
With interest rates on the rise, we in the loan business are faced with the challenge of keeping the checks coming in while the number of customers or opportunities start to dwindle. This is why we should consider adding additional tools to our loan product toolbox.
Consider the rental finance market
Rental investors are not typically approached by brokers and bankers. This space is largely a greenfield opportunity that has traditionally been serviced by private investors. Colony American Finance has emerged as the market leader that specializes in residential rental loans and other investor products. We can give you the right tools to prospect and win over the rental investor audience.
Rental finance loans do not use the typical ATR equation. In fact, the real designation is a “business purpose transaction”. The terms for these loans can often look more like commercial than residential loans but they are tailored to finance 1-4 unit single family properties.
Another advantage of these loans is that due to the non-owner occupied, business-use designation, the typical RESPA, TILA, TRID morass of disclosures and timeframes do not apply.
Three products you may want to explore to earn the rental investor customer:
Single Asset Loan
These non-owner occupied loans finance individual rental properties. They can be single family homes, condos or townhome structures. Loans are qualified based on a property’s rental income and not the borrower’s personal debt-to-income ratio. One customer can finance up to 12 individual properties under this program. Loan amounts range from a minimum of $75, 000 to a maximum of $1.2 million. These loans are a great way to address the needs of customers that can’t quite qualify for a traditional GSE sponsored investment loan.
Portfolio Term Loans
This product is designed for the investor who owns more than 5 properties and is looking for loan proceeds between $500,000 and $20 million. Rental properties are grouped into a portfolio and the overall cash flow of the portfolio determines the size of the loan, similar to a multifamily property loan. Proceeds for these loans can be up to 75% of the entire portfolio value, so long as certain debt coverage tests are met. Portfolio term loans can be either recourse or non-recourse to the borrower.
Acquisition Lines of Credit
This product is designed for the investor that pursues either a fix and flip or rental strategy. An acquisition credit line allows the investor to acquire a property and finance a significant portion of the purchase price. Advance rates are typically the lower of 80% of cost or 70% of value. Real estate lines of credit are typically 18-24 months in duration and have different features for entrepreneurial and institutional borrowers.
As you can see, these are unique and specialized products that can meaningfully augment your current product offering. Here is a link to guide you to the right programs and products – “tools” for your business: Partner Programs
Now, if I could only find the right tools to improve my golf game…
CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how CoreVest can help grow your rental and rehab business, please call 844.223.2231 or submit our contact form.