With Rising Interest Rates, Does It Make Sense to Finance Investment Property Through a Bank or Traditional Lender?

Over the past decade or so – and particularly since the COVID-19 pandemic hit the United States in 2020 – mortgage interest rates have been sitting at historical lows. This, in turn, has sparked a home buying frenzy, with many properties selling at far above their asking price, yet with low monthly payment requirements.

As a residential real estate investor, this scenario can have both pros and cons, as you may have to pay more to add to your portfolio, yet have less monthly outgo given a low mortgage payment obligation.

Unfortunately, though, going through a bank or traditional lender can require you to hand over a sizeable down payment on investment property. Going this route may also cause a hit to your credit score if you are obtaining the property(ies) in your own name.

Further, banks and lenders can also require you to submit an extensive amount of paperwork before you’re approved for a loan – which could take up to a month or more to secure. With that in mind, as interest rates begin their ascent, could it make more sense for you to use a hard money lender when buying your next real estate investment?

In some cases, the answer is yes. One reason is that hard money loans can oftentimes be approved very quickly – allowing you access to the property (and another income stream) right away. Also, because hard money lenders focus more on just the property as collateral, the personal creditworthiness of the borrower is not necessarily a big factor in the approval of the loan.

Some things to keep in mind, though, with regard to hard money lenders is the fact that you could still be required to provide a down payment. In addition, these types of loans are often short-term.

As you add to your rental real estate portfolio, the demands on your time could increase with more tenants to manage and properties to maintain. This is where a professional property management team can help.

If you own residential real estate homes and/or units in Orlando or the surrounding Central Florida locale, give us a call and we’ll provide you with more details on how we can help you continue to receive rental income, but without adding more demands on your time.