biden tax changes impact on real estate investors

Right now, real estate investors can borrow money at outrageously cheap interest rates.

Deni and Brian round up five lenders offering landlord loans under 5% interest, plus a few bonus loan sources to boot! And if your credit isn’t great, they also highlight a few options that service landlords with weaker credit scores.

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live off rents podcast transcript
Deni: Hi, everyone, welcome to Spark Rental’s Facebook Live and podcast every Tuesday. I’m actually away. It’s kind of nice to be away. I’m in the mountains, but I’m coming on anyway. And last week Brian discussed long distance rental investing with Ali Boone and talked about turnkeys and whatnot. And today we’re going to be talking about five different loan options to get started in investing. So, with that, Brian, why don’t you start us off on all about what determines interest rates?

Brian: Sure. So, we’re actually we’re going to be going over more than five options today. But we thought it was a catchy title five loan with interest rates under five percent. So, we’re cheating a little bit here. I’m going to give you a couple of bonus lender options. But, yeah, one of the huge advantages to investing in real estate over other types of investments like stocks or bonds is that you can use cheap leverage to buy real estate and to invest in real estate is that you can use other people’s money to buy your own portfolio of income producing assets. And with each one of these assets that you buy, you boost your cash flow and your monthly income. There are all kinds of other implications of that. Interest is tax deductible every year. And by the way, that’s above the line in accounting- speak, which means simply that you can take the standard deduction for your personal return and still deduct the interest from your rental property returns. Using other people’s money or using leverage can improve your cash-on-cash returns. It can improve the return you actually get on your money that you put on the down payment versus going out and buying a property in cash. Sometimes you can earn a higher return on just your down payment cash then you would have earned if you’d gone out and bought the property in cash. So, leverage is super huge in real estate investing. It’s a huge advantage. And with interest rates so low right now, you can go out and borrow money to buy rental properties under five percent, And in some cases even under four percent, which is crazy by historical standards.

Brian: So, none of which answered your question, Deni. The better your credit history, the lower your interest rate is going to be just like going on and borrowing a homeowner mortgage. Right. Same thing. Work on improving your credit scores. We do have an article on our blog about exactly what you can do to improve your credit score. I don’t think we have a link to that handy, but it’s right there in our blog if you do a quick search, if you are looking for ways to improve your credit score. And the fastest way to do that is to remove errors, if your report does have errors on it. The second fastest way is to pay down your credit card debt ratios. You want to pay down your credit card usage below 30 percent of your maximum credit line. I want to get bogged down in credit history, but improving your credit is a really quick way to lower your interest rate when you go shopping for an interest rate for an investment property loan. Second thing that determines your interest rate on these loans is your investing experience. Portfolio lenders, these lenders that specialize in working with real estate investors and landlords, they do care about your experience as a landlord. They want to look at your track record and see do you have a history of successful real estate investing? How many properties have you done over the last year, over the last five years? How are those properties performing? Have you been paying your mortgages for those properties on time so they will look at your real estate investing experience?

Deni: It’s just crazy because it just brings when I purchased a bar and it had rental units, about six of them on top of it. And I never bought I never ran a bar before, but we got the loan because I had experience with rental properties and having my own portfolio. So, it does work that way. It’s interesting.

Brian: Yeah. So, you know, as you get more experience as a real estate investor, you can expect your interest rates to go down with some of these portfolio lenders. We’ll go into examples of some of these portfolio lenders in a minute. The third thing that impacts your interest rate as a real estate investor is the loan term. If you get an adjustable-rate mortgage, which is also known as an arm, you’re going to have a lower interest rate up front during the fixed interest portion of it. But then once it converts over to adjustable and adjustable rate, you can expect an interest rate to jump up. If you get a 30-year fixed interest mortgage, then the interest rate will be a little higher in the beginning, but you have the same low fixed interest rate for the entire life of the loan, the full 30 years.

Deni: With the way interest rates are right now, wouldn’t it be better to go with the fixed?

Brian: Yeah, absolutely. You should. Right now, you should 100 percent go with a 30-year fixed mortgage, fixed interest mortgage. And then the fourth and final factor that impacts your interest rate is you can buy down your interest rate by paying more points up front, which, can be a reasonable strategy. You don’t need to go crazy with that. But you can buy down the interest rate by paying more money up front. Before we jump into some of these lenders that are offering landlord loans for under five percent interest right now, it’s worth mentioning that they all charge around two points and that depends on the loan amount. the lower the loan amount, expect to pay higher or more points because the to be worth the lenders while to go through the labor of making this loan. If you go out and borrow a fifty-thousand-dollar mortgage, they might charge you three or four points as opposed to going out and borrowing a five hundred-thousand-dollar mortgage where they only charge you one point or two points. But most of these options we’re about to discuss, they all charge around two points. And again, sometimes you can pay more points and buy down the interest rate. None of these lenders are charging astronomically cheaper points up front. You’re all going to be paying around two percent or two points for each of these loans.

Deni: So, let’s talk about some of these lenders. Let’s talk about the Lending Tree and conventional mortgages.

Brian: The first option, to get a conventional mortgage and potentially pay a lower down payment. You will almost certainly pay a lower interest rate. You’re probably looking at around three and a half percent and up for an interest rate right now on some of these conventional mortgages for investment properties. Now, they do come with some downsides to go along with those that upside of lower interest. These do report on your credit report, report to the credit bureaus. Once you have three or four of these mortgages reporting on your credit report, it gets really hard to get approved for more. Most of these loan programs have a hard cap of around four mortgages reporting on your credit. And above that, they will not lend to you. These work as a beginner option. If you’re just starting out, you’re buying your first rental property or two. You can get away with use going to your same mortgage lender that you used for your home mortgage. But after your first property or two, you’re really better off borrowing from portfolio lenders. And the reason they’re called portfolio lenders is they keep the loans in their own portfolios rather than selling them off to huge mortgage servicing corporations out there.

Deni: Let’s jump in and talk about some of these other portfolio lenders, because this is really the bread and butter for financing rental properties as an experienced real estate investor. The cheapest of these interest rate rise, at least for the floor that they charge for interest rates right now, is Lending One. Their bottom interest rate at this moment is three-point six percent, which is really low. Now, keep in mind that that’s for an adjustable-rate mortgage. Their 30-year fixed is going to be a little bit more expensive. And if you don’t have perfect credit and a bunch of experience as an investor, you’re going to be paying more than the three-point six percent. I mean, that’s like their base interest rate. And for all of these lenders that we’re talking about here; we’re going to talk we’re going to mention their base interest rate. You will probably pay more than their base interest rate be like a perfect candidate to get the base interest rate.

Deni: 800 credit score and (laughter)

Brian: Exactly! Lending One have a minimum credit score of 680. Keep that in mind they require you to put down at least 20 percent. They lend up to 80 percent LTV or loan to value ratio. Give them a shot. The next lender on our list is RCN Capital. And by the way, as we discuss these Deni will be adding links to them in the comments so you can check them out. RCN Capital baseline interest rate of three-point eighty five percent. And again, you may pay more than that with them, but that is the lowest interest rate they offer right now. These guys do allow a little bit of a lower credit score. They will lend to people with credit as low as 620. If your credit is a little lower, you can check out RCN Capital and they may work with you.

Deni: Just keep in mind that you’re probably going to pay a little bit higher interest rate.

Brian: No question. All right. Next lender on the list is Lending Home. And we’ve worked more closely with Lending Home than some of these other lenders. We like Lending Home. They’re relatively easy to work with. Their base interest rate right now is three point eight seven five percent. Again, you’re going to probably pay more than that, but that’s the lowest that they’re offering right now. They do require a minimum credit score of 680. They do not do a hard credit pool. So, when you apply with them, it will not ding your credit. You can apply with them and get a rate quote, and it’s not going to hurt your credit. And one thing that is a little bit more unique about Lending Home is that they don’t require cash reserves. Most of these lenders do require between three and six months, sometimes even nine months’ worth of loan payments as cash reserves held in your bank account at the time of closing. Lending Home does not require cash reserves, although they will probably charge you a higher interest rate if you don’t have any cash reserves.

Deni: So, one way or another they’re going to get it.

Brian: But they are they are a good option to check out.

Brian: All right, next lender option on the list is Patch of land. They offer loans as low as four-point two five percent, and the interest rates go up to around six percent. Their minimum credit score is also 620. They do service landlords and real estate investors with a little weaker credit. Definitely worth considering. Next lender option here is Lendency. Their baseline interest rate is four point three seven five percent. And by the way, that is for a 30-year fixed loan. I don’t even think that they offer adjustable-rate mortgages. They keep it nice and simple with 30-year fixed loans. So, check them out.

Brian: Last but not least, is Civic Financial. Their baseline interest rate right now is four-point seventy five percent. And these guys actually will work with investors with the lowest credit score. They’ll go down as low as six hundred. For real estate investors with weaker credit, Civic Financial is probably your best bet, although Patch of Land and RCN will service you if your credit is as low as 620. Consider Civic Financial, especially if your credit is not so strong. Now, we do have a bonus option for you today for borrowing money for real estate. Deni, tell us a little bit about how to open credit lines and business credit cards to invest in real estate,

Deni: That is a great option, especially if you are somebody who has too many properties, or too many mortgages, and they won’t lend to you. You can go to somebody like Fund and Grow and they help you get money by just scrubbing for credit lines and credit cards and some of them at zero percent interest rate, at least for a certain amount of time. This is another great way to explore adding to your portfolio.

Brian: Yeah. And by the way, as a real estate investor, you do count as a business owner in their eyes. Even if you have a full-time job being employed by someone else and you just invest in real estate on the side, you can still open a whole bunch of unsecured business credit lines and credit cards through Fund and Grow. And you count as a business, as a real estate investor. The way it works is they do three rounds of what they call fundraising which is opening these lines of credit for you over the course of a year. And in between each round of fundraising, they will scrub your credit report clean so you don’t have all those inquiries on there. And they’ll make sure you don’t have any errors on your credit report. They will help you open up credit lines between fifty thousand and two hundred fifty thousand dollars total. The combined total of your credit lines and cards. But that’s a lot of money that you could even use to buy properties outright by swiping your credit card, which is crazy. Or you can put it towards down payments, or you can put it towards renovations. It is good flex money that you don’t spend anything on if you are not tapping into it at that moment, just like these are credit cards. So, they don’t cost you anything if they’re sitting there unused, you just pay for what you’re using.

Deni: But they also will work with people with less than perfect credit and actually help.

Brian: They will. Your credit limits will be based on your personal credit score, so the higher your credit, the higher your credit limits you can expect for those credit lines and credit cards. But it’s a great flexible way to invest in real estate. Deni, before we wrap up, any final thoughts on this topic?

Deni: There is one I’m just going to mention this because it was actually in the Facebook group. Somebody was asking if I don’t have any experience, or I don’t have any down payment or I have very little credit. Brian and I have done a lot of webinars with Al Williamson, and he does this thing called rental arbitrage where you don’t need any money. His method is just awesome. If you’re looking for information on that, just reach out to support a Spark Rental.com and we’ll get you information on that. But it’s really, interesting. I, think so anyway.

Brian: Absolutely! That’s a great tip. Next week, by the way, we are bringing in Michael Quan from Financially Alert. We are going to talk about his new book, Fire Planner and how he retired at age thirty-six, and specifically how you can walk in his footsteps and do the exact same thing. So, join us next Tuesday at two p.m. on our Facebook page at Spark Rental. And we will catch you on the flip side.

Deni: Absolutely. Have a great day.

Deni: All right. See you guys next week.

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