Long term rental loans have become a popular offering by private and hard money lenders lately. In this video, I'm going to explain a few reasons why you should consider these loans for your rental properties, what the typical guidelines are, and where to find lenders that offer long term financing.
I'm Rocky Butani, CEO of privatelenderlink.com, where investors and brokers can easily find direct, private, and hard money lending companies throughout the United States.
For real estate investors who own single family homes, condos, or 2-4 unit multifamily properties, private and hard money lenders now offer long term loans at much lower rates than what they typically charge for a bridge or rehab fix and flip loan.
Fueled by institutional capital markets, these programs started to gain popularity in late 2018. You may also hear them referred to as an LTR Loan or DSCR Loan. LTR is just short for long term rental and DSCR stands for debt service coverage ratio.
Most of these loans carry a term of 30 years, but some lenders offer a five, seven, or 10 year term. Most of us in the private lending industry consider long term to be anything longer than five years.
This is a great alternative to conventional financing. There's a few reasons why a real estate investor would consider private or hard money lender for permanent financing.
Reason number one: speed
Private lending is generally much faster than dealing with banks. If you're on a tight timeline, chances are your loan will get funded faster with a non conventional lender. If it's a purchase, I've even heard of some private lending companies that will consider doing an in-house valuation and then close the loan, and after the closing, they'll order the formal appraisal. That could end up saving you days, maybe even up to two weeks if appraisers are really busy in that particular region.
Reason number two: easier qualification
The main qualification for these LTR loans is the rental income, or more specifically, the DSCR or debt service coverage ratio. Basically, that just means that the lender wants to make sure there's enough rental income coming in for you to make the mortgage payments. They typically don't require tax returns, but they do require decent credit. The minimum credit score is going to be around 680.
Reason number three: no portfolio limits
Many conventional lenders won't lend to you if you own more than four properties, including your primary residence. Some will go up to 10. In private lending, there's no limit on how many properties the investor can own. The lender may just require that the property be held by an entity and not by an individual.
Reason number four: no seasoning requirements
Most long term rental lenders don't require the property to be occupied for a certain number of time before you can get the loan. In fact, the property doesn't even need to be occupied. You can have the property ready to rent and you can still be looking for a tenant. You don't even have to have a signed lease. The key is you just have to have the property in move-in ready condition.
At the time of this recording in late 2020, the interest rates range from 4.5% to 8%. All lenders charge origination fees which range from 1% to 4%. This is more commonly known as points. So one to four points.
The maximum loan to value is 75%. I've seen some lenders go up to 80% if it's a prime location. Some will go down to 70% if the location is not as favorable. But it's going to range from 70% to 80%.
All lenders require formal appraisal for these long term rental loans. There's no way around that.
Loan amounts range from $75,000 to $2 million per property. It's not going to be easy to find lenders that will lend less than $75,000 per property.
Lastly, the property must be classified as residential. So this includes single family homes, condominiums, townhomes, and 2-4 units. Also, it can't be a specialty property type with a lot of acreage for example.
Okay, now I'm going to show you how to find long term rental lenders on our website. You can do a search straight from the homepage, or you can go directly to our long term rental page.
So you want to just type in any region and hit search. Then on this page, you're gonna see a bunch of lenders, you can scroll down and look at all of their lender cards. Click on View Profile for any of them.
To find their long term rental guidelines, you want to scroll down on the first page until you get to long term rental criteria. That's a section that has all of their guidelines for long term rentals. So that's how you can find residential ltr lenders on our website.
Transcribed by https://otter.ai
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