Residential rental investors face a set of challenges and requirements that do not apply to other people who apply for mortgages. Traditionally, the group has had limited access to financing.
In the aftermath of the financial crisis, around 4.5 million homes have been sold and converted to rental properties with the majority owned by small investors. While big investors can self-finance their acquisitions, small- to midsize-landlords intent on cashing in on distressed properties are left with very few viable financing options.
Today, buy-to-rent investors can still make good money, buying up real estate at distressed prices and then renting it out. However, without a lender who understands how this business works, finding financing can prove to be difficult.
Fannie Mae and Freddie Mac limit the number of investment property mortgages to one investor at four and 10, respectively. Agencies will cut the number sooner if a borrower does not have the personal income to qualify, which is often, Mark Mohl, senior account executive at B2R Finance, said.
So how do brokers of these small investors find financing for their clients?
Cue in B2R Finance. The company is one of a few in the country that focuses on lending money to landlords interested in expanding their single-family, home–to-rent portfolio. It finances residential rental properties, including single-family, small multifamily properties, condos and townhomes.
“Previously these small investors would have to go through hard money or private money lenders,” Mohl said. “There’s been a void in the space for this group to find competitive financing.”
B2R offers loans of up to 75% of home values for pools of leased properties. The company’s minimum loan size is $300,000 and provides five- and 10-year terms with up to a 30-year amortization schedule. Financed properties need to be no less than 60% residential.
B2R Finance can help investors unlock equity from existing properties, improve their cash flow and build their portfolios. “If they have two or three properties and are looking to have eight to 10 properties in their portfolio, we can help them get there,” Mohl said. “Instead of several loans for several properties, B2R can provide a blanket loan.”
The process is simple. B2R Finance provides an excel sheet for brokers to enter the client’s property info, including rent roll, value and cash flow. Once the sheet is filled out, the broker sends it to B2R where a finance expert reviews the data and then gives the broker loan terms. From there, the broker pitches it to their investor client.
By the numbers:
Most mortgage lenders require a big down payment and make loans based on your personal debt-to-income ratio. B2R Finance, for example, focuses on the cash flow a rental property is expected to generate in making a lending decision rather than a borrower’s income. Here’s what client’s need to know about B2R Finance’s program.
• Interest rates: Competitive fixed rates based on current market conditions
• Terms: 5- and 10-year terms with up to a 30-year amortization schedule
• Loan-to-value: up to 75% of LTV
• Amount: Loans begin at $300,000
• Portfolio size: Minimum of five units is required for portfolio loans
• Vacancy: Vacant properties can be financed, but only to a certain extent. Properties must be 90% leased at closing or be in lease-ready condition.
• Debt service ratio: 1.2x debt service coverage ratio.