In today’s lending environment, a loan from your friendly banker on an investment property is nearly impossible to get. Many investors have held onto their income-producing investment properties through the meltdown in real estate. With only a small amount of debt left on their investment properties, many of these investors decided to ride out the real estate crisis and keep paying on their mortgages.
Now that the real estate market is beginning to recover, investors are seeking to refinance their investment properties and even pick up new properties. However, finding bank loans for investment property purchases and refinances has become increasingly difficult. Even borrowers with perfect credit, good income, and consistent rental income are having trouble obtaining a bank loan on an investment property. For those who are looking to refinance at a lower interest rate, even the most qualified borrowers are being declined.
Many investors who have picked up discounted, income-producing investment properties in recent years have been using their own cash to acquisition the properties. With a large portion of their cash tied up in these properties, investors were hoping to refinance once the properties were stabilized. Unfortunately, many of these investors have been turned down at the bank and are unable to pull out their cash to reinvest. For those who have used hard money loans to purchase investment properties, finding a bank that will refinance has also been a challenge. Because a hard money loan is a short-term, band-aid loan, those who are unable to refinance at the bank have been forced to sell properties that were originally intended to be long-term investments.
Although banks are lending on owner occupied residential properties, borrowers who need investment property loans on income-producing real estate are striking out. For this reason, investors are seeking out private lenders and hard money lenders to fill the void in investment property lending. Many non-bank, real estate lenders are now offering two to five year loans on income-producing investment properties which has enabled many investors to hold onto investment properties until they can qualify at the bank. Although private money interest rates are much higher, investors are also able to pull cash out of their properties and reinvest it at a higher rate of return.
If you are seeking to finance an investment property at the bank, get ready for a long, bumpy ride where you may never reach your destination. And if your exit strategy is a bank loan on an all cash purchase or a hard money loan, you may want to consider some alternatives.