I have spoken one-on-one with thousands of real estate investors across the country buying turnkey properties or executing the BRRRR (rehab to rent) strategy. They are focused on building a portfolio of rental properties to create “passive” income that will offset and replace their active income. The barriers to building a large rental portfolio mentioned most frequently to me is the 10 property rule when using conventional loans (Fannie Mae & Freddie Mac) and the full-time job of paperwork and answering “underwriter requests” when working with conventional & bank lenders.
A very small fraction of these investors were aware that there is a readily available solution to financing rental properties outside of conventional loans. Non-QM rental property loans can be used on non-owner occupied, rental properties as an alternative to conventional & bank loans or as the tool once the 10 conventional loan spots are filled.
Here are 6 reasons why real estate investors should consider a Non-QM loan to finance their rental properties:
- Faster & less paperwork! Who loves paperwork, endless questions, more paperwork, and delayed closings. Not one real estate investor I know!!! There are at least 99 problems that will get in the way of your plan to build a large portfolio of rental properties. Why not remove a few… Skip the personal income verification and 1-2 years of tax returns that will create more questions from the underwriting team. These rental loans only require a FICO over 650, property DSCR over >1.0 and Liquidity (6 months of debt service) and close a few days after the property is appraised.
- Qualify based on Debt-Service-Coverage (DSCR). Passing the DTI ratio test for a conventional loan can create issues for many real estate investors. Maybe you don’t have W-2 income or already own several rental properties and your DTI is maxed. These rental loans are based on DSCR of the property(s) linked to the loan. This means if the property is cash flowing, or will based on market rents, then you qualify for the loan.
- Purchase a property without a lease in place. Unlike conventional loans, these rental loans can be closed using the market rent analysis from an appraiser. This gives turnkey rental home buyers the opportunity to acquire properties that are rentable but not rented, a huge advantage allowing the investor to compete with all cash buyers.
- Single property or blanket loan. Conventional loans allow for one property to collateralize one loan at a time. Let’s say you want to GO BIG, and create a substantial passive income…you will get to a point where you want buy multiple properties at one-time or you will have many properties in loans that are maturing that you need to refinance. You have two choices, hope a local/regional commercial bank will provide a portfolio loan which typically have 5 to 10 year terms, or use this Non-QM loan program to lock in a 30 year fixed rate on a portfolio loan (up to $10 million per loan).
- Unlimited number of loans instead of a 10 loan limit. Owning 10 rental properties is nice, but most of us want to build a larger portfolio to create substantial passive income that will let us quit our day jobs, travel the world, or just not worry about money anymore. Serious real estate investors need to know about this financing option as it is a tool that can be used to substantially grow your portfolio of rental properties.
- Reduced or no seasoning on refinances. This is not about your mothers cooking… Cash Out and Title Seasoning that conventional loans require can be annoying and costly to real estate investors. These rental loans have a 3 month seasoning period which can be avoided completely by BRRRR investors if you work with the right lender on the purchase & rehab loan so that the refinance into the 30 yr fixed loan is a rate term refinance at your preferred LTV.