Real estate investors know that having an investor-friendly lender makes a big difference. If you’re new to real estate investing, you may be surprised to hear that not all lenders are willing to work with investors.
Real estate financing plays an important role in the success of rental properties. Loan terms such as mortgage payments, interest rates, and even the down payment on a property can cost you financially.
What does it mean to have an investor-friendly financial institution on your side? Where can you find it?
What is an investor-friendly lender?
Investor-friendly lenders are knowledgeable about the real estate market and focus on a property’s potential rather than focusing on its current market value.
Suppose you are trying to invest in real estate. You go to the bank and explain that you want to buy real estate, especially commercial real estate. To your surprise, the bank will lock you out. You lose confidence and think that any lender will say no to your potential investment.
It’s time to find an investor-friendly lender. Traditional financial institutions, typically large banks like Wells Fargo and Chase, are usually reluctant to fund investments like rental properties because they are risky. Instead, they tend to focus on financing primary residences.
Private money lenders are an example of lenders that are more investor-friendly compared to traditional money lenders, as they provide loans based on the future value of the property. Private and small lenders and their lending programs also tend to be less monitored, which usually means there are fewer hoops for investors to jump through.
If private lenders aren’t working for you and you need something quickly without the hassle of a traditional loan, try a portfolio lender. If you want to avoid all of the ultra-strict borrower requirements set by Fannie Mae and Freddie Mac, consider a portfolio mortgage lender. Portfolio loans also allow investors to purchase multiple properties.
Investment real estate loans are very different from traditional loans. Banks, especially local banks, prefer lending to people who want to finance their primary residence.
The best way to find an investor-friendly lender
It’s important to find an investor-friendly lender that’s right for you. For potential real estate investors, relationships with lenders are extremely important. Here are some ways to find an investor-friendly lender.
Advances in technology are inevitable, and tools are being added to your real estate technology stack every day to help organize and simplify your next investment. BiggerPockets’ Lender Finder allows you to enter details such as the property’s location, address if you have one, and the purpose for which you are purchasing the property.
Once you enter your details, the tool will search its database for investor-friendly financial institutions you can contact. You also have the option to request to contact your lender for more information. With Lender Finder, you can find a lender within minutes.
Posts from BiggerPockets members in the forums are asking for advice on local lenders, as well as basics like what interest rates to look for, the best investment real estate loans, and minimum down payment requirements. Masu.
An experienced investor in your area can usually point you in the right direction with financial institutions near you and those that are best suited to what you want to do. For example, are you considering renting a property? Get advice on which lenders to look for in your rental property location. Interested in commercial real estate? Find the commercial lender that best fits your needs.
From local real estate groups to Meetup.com, it’s important to network locally with people in the real estate industry. Want to learn more about rental property loans? Find a local investor who owns multiple rental properties and can tell you more about financing and owning a rental property.
Having worked hard on networking this year, I would say that the real estate industry and connections within the industry are intertwined. For example, an agent tends to be an all-in-one connection because real estate agents have many connections, from financing to insurance to real estate referrals.
I’ve also met mortgage brokers at local events who, even though they can’t finance your deal, can connect you with lenders who can. At networking events, you may meet other local investors who can introduce you to contractors you’d like to work with. Or they may be able to recommend a local investor-friendly lender who can help fund your next potential deal.
Picking up the phone creates a more personal connection than sending a text or email. This allows both parties to get to know each other in a way that is not possible with a 25 text thread.
So, where do you start? Who do you call? If you don’t like going out and feel more comfortable picking up the phone, call local real estate investors who are currently popular in your area please. If you’re an experienced real estate investor, you’ll soon have a list of investor-friendly lenders you should and shouldn’t contact.
When cold calling, don’t be afraid to chat with multiple lenders and mortgage brokers, as each has different terms. Be sure to ask your potential lender how much of a loan they can take out at once, the minimum loan amount for real estate, and what types of loans they specialize in, such as rehabilitation loans or portfolio loans. Remember that the type of property, whether residential or commercial, plays an important role in the type of loan.
Social media is no longer just a place to post photos of friends and family. It’s also great for networking, especially when looking for investor-friendly financial institutions. For example, investors can easily request lender recommendations from local investors.
There are 4.8 billion social media users worldwide. Account for 59.9% of the world’s population 92.7% of all internet users. Imagine all the research opportunities that exist to find the best lender for you.
Outside of research on social platforms and chats with local REI groups, Google is officially its own beast. As you know, it provides an exponential and sometimes overwhelming amount of information.
When searching for a lender, read Google reviews related to the lender’s business and name. Google reviews are a great way to get insight into what people think without actually having to have a conversation.
If your lender has a website, you can search for different loan programs and investment types, such as rental properties, based on the terms the lender offers. Also note that the minimum loan amount varies depending on the type of property.
Benefits of partnering with an investor-friendly financial institution
Investor-friendly lenders offer a lot to real estate investors. Let’s take a closer look at the benefits of working with a financier who’s as passionate about real estate investing as you are.
Applying for a loan isn’t easy, but when looking for an investment property loan, it’s essential to consider the hurdles you’ll have to overcome to get the loan in the first place. Many real estate transactions are time-sensitive, so it’s important to find a lender with a quick approval process.
Investor-friendly lenders don’t have very strict lending guidelines like traditional loans. These lenders also tend to be just as optimistic about their investments as investors. What more could you ask for?
Investor-friendly lenders understand that speed and approval of funds can make a big difference for real estate investors. These lenders are typically individual investors, hard money lenders, sometimes portfolio lenders, and even private lenders.
For many real estate investors, time is of the essence when purchasing real estate, especially for immediate cash flow properties. Investor-friendly lenders can make quick decisions about investment properties and provide the financing you need within an acceptable period of time.
Investor-friendly lenders save real estate investors’ time by providing ease of access, such as processing documents online and responding quickly so real estate investors don’t have to make extra trips. They seem to appreciate and acknowledge it.
These lenders foster relationships with their customers and are clearly optimistic about the future of their customers’ investments. Additionally, the company’s loan programs offer a more customized approach to financing things like flips and rental properties.
Do you need a lower down payment or more cash flow tolerance? Investor-friendly lenders can help you find the best loan for where you are financially without completely depleting you from where you want to be. We will work with you to customize your deal.
You may need a lower minimum down payment to have more cash to invest. The good thing about having a lender on your side is that they will work with you rather than against you. Sure, interest rates may be higher for now, but once businesses like rental properties take off and start generating reasonable cash flow, those financing terms will become a thing of the past.
Are you ready to connect with an investor-friendly financial institution?
Whether you’re investing in rental or commercial real estate, connections with investor-friendly lenders can make all the difference when running a real estate business. Investment real estate loans can be confusing, especially for novice investors. If your ultimate goal is to invest in multiple properties within the next few years, developing a dynamic professional relationship with your lender is essential.
Having a lender that offers the right loan program, understands your needs, and works with you within that program to give you the best possible outcome is essential. Are portfolio loans the best way to finance your next investment? It’s important to have these conversations with a trusted financial professional. Real estate investors need to do their due diligence before partnering with a lender. Each financial institution has different offerings, so choose the one with the most suitable financing terms.
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Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.