Rental Properties

Rental properties can create problems for prospective borrowers; this is mostly because lenders have a risk-based view of income earning properties and the potential effect they can have on the borrower’s ability to repay as planned.

To offset this potential risk, lender’s guidelines often have restrictions on rental income.

Some examples of these restrictions are an automatic 25% “vacancy/loss factor“, or exclusion of the total gross rent income received, which lenders use to account for the ever-present possibility that you wont be able find suitable renters for an extended period.

Rental property loans require good to excellent credit to qualify for and many require a down payment of at least 5%. There are 100% rental property mortgage programs available to borrowers with excellent credit but many have higher rates that affect positive cash flow on the rental property every month.

Rental properties usually carry a higher interest rate than properties that are a person' primary residence. This is mainly because a rental property is a higher risk than a primary residence. If times get tough or the owner can not fill a vacancy in a rental property, the homeowner is more likely to fall behind and let the rental property go before they would their main residence.

Appraisals for rental properties are typically more than a primary residence due to the fact that the appraiser has to conduct rental surveys of like properties in the area to determine what rental income the specified property will generate.

Many rental property owners use property managers or real estate companies to collect rent, handle evictions, and other day to day duties involving owning rental property. Such companies often handle rental applications, credit checks, reference checking, and other duties to ensure your don't get stuck with a dead beat renter.

If you use a property for more than 14 days for personal use it will not be considered a rental property for tax purposes.

It is said that it's a good time to purchase Rental or Income Properties. With the foreclosure rate so high, many of today's homeowners will become tomorrow's renters and Rental or Income Properties and their owners should be successful.

Commericial blanket loans are available for single family residences. Most programs require a certain number of properties before they can be grouped into one loan or an amount. Blanket loans allow investors to close in their LLC, CORP, or Trust.

It is important to be handy if you plan to own rental properties. If not, be sure you have money in reserve to make necessary repairs. Many investors use a handyman or property management firm to handle maintenance and repairs.

Single Family Rental Properties currently require more substantial down payments or hard equity due primarily to a high degree of abandonment by buyers who had little skin in the game.

» DISCLAIMER: The information contained in this article on 'Rental Properties' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.