Today, the financing market can be quite tight, especially if you’re shopping for a loan for investment property.
While banks today may take a longer look at your credit history before issuing a loan, and you will certainly be required to put more money down than you would before. Banks are looking to get a quicker return with a lower risk profile than ever before, which makes the way you structure financing on your investment property even more important than ever before.
In order to properly secure the best possible loan package, try to move beyond anonymous, data-driven loan offers that are common with global banks. Instead, look to regional and local banks, which may be willing to work with you on a more personal basis, and might have direct knowledge of the area which can only further enhance your prospects.
Working with a local, professional banker can help steer you in the right direction, and can give you a full array of options, from long-term mortgage loans to shorter term working capital, depending on your needs. With the shifts in interest rates, a bankers can help you determine whether a fixed rate long-term mortgage makes sense in the context of your cash inflow – smart bankers recognize that when they structure loans that work best for their clients, they enhance their loan portfolios.
If you are seeking to earn a return in the short run from resale, then you’ll want to stick with a variable rate (which is less likely to have a penalty for paying off the loan early.) Still, you might want to consider whether it is advantageous to take out a short term loan, giving the shifts in the market, as there are a lack of buyers for deals that don’t show immediate profit potential.
Taking a lesson from the global market, it’s important to note that investments that seem attractive today may deteriorate as the market shifts. For example, many UK property investors are now seeing surrounding area struggles dragging down the value of their properties, which creates a domino effect (see Guardian UK ).
Many US areas are seeing similar patterns in recent months, which increases the risk of short term investment property returns, and, subsequently, short term financing.
As a result, it’s best to take a longer term approach to maximize your chances of success, and finding a banker who will work with you on a partnership basis is the best route to take. Always approach financing offers as a chance to sell your plan, based upon market data and projections – the more data-driven your presentation is, the more likely you’ll get good lenders on board.
Make sure you plan is based on solid revenue and cost projections, showing how you plan to get the venture profitable as soon as possible, along with a road map to how you see the plan unfolding. Bankers will likely view such detail positively, especially if you’re taken all the time to answer their questions with market data, rather than just your view – ultimately, in today’s market, profit speaks much louder than words.
