Investment Property Portfolio, 6 Key Strategies for a Smart Loan
Article Collected By: Janet Schlarbaum
Author: Brian Long
A booming market for buy-to-let and investment property portfolios has created the need for new types of mortgages and investment property loan facilities. Securing finance for buy to let and holiday rental properties classed as an “investment property loan”, has never been easier and many of the main lenders have transformed their lending criteria to support property entrepreneurs.
Historically lenders were reluctant to support property investors unless they had serious investment equity ranging from 25-40% of a given properties value. The latest range of financial offerings, are now more in-line with existing household mortgages where buy to let loans are available for up to 90% of the value of the property. The criteria for lending, depends very much on the anticipated yields for the property and to some degree on solid business plans and logic that reflect capital growth in the investment. With a myriad of product offerings available it maybe difficult for a prospective property investor to determine what constitutes a good offer from a financial institution.
The best investment property lenders will look and consider 6 key elements in their risk assessment. So it is very important that you as the proposer understand clearly and prepare in advance a plan that accurately presents your facts in order to pitch smartly to get the finance you need.
6 key Investment Property Loan points
Equity available Know what you have in terms of tangible equity in your home, other investments in assets, and liquidity. Use this valuable information to form the basis of calculating your security to finance the investment plan. This ensures to the lender that you have a sound knowledge of your strategy in investing and you have a good consideration in managing your risk.
Interest Rate Percentages It is generally anticipated that the higher the investment deposit the better the mortgage rate. Buy-to-let mortgages rarely attract the discounts that home mortgages attain. However interest rate benefits are gained if you are prepared to put up front 20 25% of the loan value. Try and avoid low deposits as the rates for larger deposits will be more attractive both in the short-term overhead reduction and long-term gain.
Current debts Ideally all outstanding mortgage and loan liabilities or commitments should be understood and declared when requesting the finance. This will determine the maximum loan available to you for your investment project. Ideally this should be considered in advance of any property speculation or viewing of proposed properties. You may also find through this process that it presents an excellent opportunity to consolidate current finance and reduce overheads through the consolidation process.
Current Income or Salary Lenders will often consider salary and income within the mix of calculating repayments. Multiples of salary are often considered along with the yields or estimated monthly rental incomes from the property portfolio. Important to the property investment will be the current state of the property and whether the property requires investment in refurbishment or modification to enable tenants or renters to occupy.
Tax liability Reduction You can often save money by offsetting your mortgage payments, maintenance costs and agents fees against rental income. This will ultimately reduce tax liabilities against any profits made in rental and capital growth.
Insure properly Accidental damage caused by renters or tenants does occur as does general wear and tear. So, make sure that you invest in adequate insurance and don’t let these costly overheads affect your profits. There are specialized landlord and investment property insurers who will cover your property for these eventualities and once again these fees should be tax-deductable.
Alternative Business Loan and Commercial Mortgage Options
Article Recommended By: Janet Schlarbaum
Author: Stephen A Bush
Commercial borrowers need to realize that they have more commercial loan options than they think. These business financing options are referred to here as “Thinking Outside the Bank” because most commercial borrowers believe that a bank is the best source for a commercial loan. Non-traditional business lenders are commonly considered to have the competitive edge for a variety of business financing situations.
Here are two brief examples about how a commercial borrower is likely to benefit by “Thinking Outside the Bank”. In many situations a traditional bank will provide a commercial mortgage but will include non-competitive covenants and terms. In other cases a traditional bank will decline the business loan because they do not provide commercial financing to the commercial borrower’s particular type of business.
Commercial loan borrowers might feel that a bank is their most likely source for business financing. However, since traditional banks usually focus on a few types of businesses, non-traditional business lenders should be emphasized for any business loan situation. Therefore the recommended commercial mortgage strategy discussed in this article is to “Think Outside the Bank”.
As I noted in an earlier commercial mortgage article, in many non-competitive business loan situations it is not unusual for a local traditional bank to impose harsher business financing terms than would commonly be seen in a more competitive commercial loan market. Such traditional banks routinely take advantage of a relative lack of other commercial lenders in their local market.
An appropriate response by commercial borrowers is to seek out non-bank business loan options. It is neither necessary nor wise for commercial borrowers to depend only upon local traditional banks for business financing solutions. For most commercial mortgage situations, a non-local and non-bank commercial lender is likely to provide improved commercial loan terms because they are accustomed to competing aggressively with other commercial lenders.
There are at least three commercial loan situations in which business borrowers will typically experience that non-traditional lending sources can provide conditions that are best for the borrower: (1) commercial mortgage loan programs; (2) credit card factoring programs; and (3) working capital management programs for credit card processing.
Commercial Loan Programs - Commercial Mortgage Business Loan Choices
Two of the most prevalent commercial real estate loan obstacles can be precluded with a “Think Outside the Bank” mentality by businesses. The first commercial mortgage obstacle is the common practice of most banks to decline business financing for special purpose commercial properties such as churches and golf courses.
A second business loan possibility is the frequent practice of many commercial banks to add recall and balloon conditions to their commercial loans. The bank can then require early payoff of the commercial real estate loan under stipulated conditions. Both commercial financing situations can easily be prevented by a non-traditional lending source.
Business Loan Options - Business Cash Advance Programs
Many merchants that accept credit cards in their business will qualify for a merchant cash advance with credit card factoring. A traditional bank will usually be a poor source of help if a business needs to use credit card financing.
Because even thriving businesses frequently need more cash than they can borrow from a bank, it can be of critical importance for a business to “Think Outside the Bank” and locate non-traditional lenders to assist with this business financing need.
Business Loan Options - Credit Card Processing Programs
A credit card processing service can be a key function in improving the bottom line of merchants with high volume credit card activity. The analysis of credit card processing providers can be efficiently combined with credit card receivables and credit card financing.
In managing a merchant cash advance program, it is often possible to obtain a significant improvement in credit card processing activities. It is probable that a non-traditional lender will be the key source of effective help with credit card processing because traditional banks are usually not competitive in providing assistance with credit card financing.
A closing business financing thought: I have written an earlier business loan article about commercial lenders to avoid. It should be noted that there are in fact both traditional and non-traditional (non-bank) lenders which should be avoided.
So when commercial borrowers “Think Outside the Bank”, it is still of critical importance that they are prepared to avoid a wide variety of problematic non-traditional commercial lenders in their search for viable business financing, especially when it involves business cash advance (credit card receivables and credit card factoring) programs, credit card processing services and commercial real estate financing.