The current dynamics of the real estate marketplace makes it increasingly challenging for real estate investors to achieve the same return on investment (ROI) from fix-and-flip properties. Although some have opted to diversify their portfolios with property assets in alternative categories, investors still encounter depleted housing supplies in virtually every primary marketplace across the counter—forcing them to turn to secondary or event tertiary markets. This forced market pivot can be understandably overwhelming as it is significantly distinct than transitioning to a parallel primary market. Investors must modify their entire investment model which entails different costs, yields and personnel.
Accordingly, these same investors typically return to their original primary market as opposed to navigating the unknown in an alternative marketplace—although they have been forced to tweak their approach to adapt to the new real estate environment. It is now more common for investors to retain ownership of fix-and-flip properties and rent them out due to the rise in demand from tenants. This allows investors to receive sufficient passive income to cover the costs of the property until the market is more favorable to sellers.
How can investors adjust their financing strategy to accommodate this new business model? The initial reality for investors to comprehend is that accumulating several rental properties often necessitates a larger down payment. For fix-and-flip loans, investors usually obtain financing that covers between 80% to 90% of the entire cost. On the other hand, rental property funding schemes generally top out at 75% loan to value. Applying this to a moderate investment portfolio consisting of five to ten assets with an aggregate value of $1 million, investors would have to provide approximately $250,000 out-of-pocket in addition to closing costs, reserves and carrying expenses. Fortunately, for investors that do not possess these types of cash reserves, Gauntlet Funding provides flexible and efficient bridge loan options that can help them build their rental portfolios over an extended timeframe instead of one major transaction.
There are essentially three rental property financing options for real estate investors. Agency loans like those offered by Fannie Mae have rates ranging between three to four percent for investors that they are able to satisfy their prerequisites. Private loan options, including Gauntlet Funding’s funding programs, have rates between four and five percent for qualified borrowers. The last option is single asset rental loans that are somewhat comparable to a sub-prime loan that carries rates in the six to seven percent range.
Based on these figures along, investors might think the best approach is to obtain agency funding. These loans, however, usually are capped at ten properties or have similar income maximum limits. For individuals looking to grow sizeable portfolios consisting of more properties, the most cost-effective move is to first utilize Fannie Mae loans for their initial ten assets, then use CMBS to effectively erase these mortgages from their personal liability in order to obtain a further ten property loans. This can be accomplished with Gauntlet Funding’s CMBS loan options, which deed all of these properties from an investor’s name to a corporate entity, allowing them to qualify for more funding at reduced rates.
For more than two decades, the industry experts at Gauntlet Funding have been assisting real estate investors successfully grow and diversify their investment portfolios. We specialize in providing flexible private hard money lending programs specifically designed to meet the unique needs of the current market. Because we are a direct lender and not a broker, you can always rely on expert insight, efficient underwriting and fast closings in a fraction of the time it takes traditional banks. Contact us today to learn more about how we can help you achieve your investment goals.