How to Get Financing for Rental Properties

Where Can You Find Loans?

Right when you start you should meet with two to three lenders and see what NOO loan programs they have for what you plan to buy. Try a bank or two, plus a mortgage broker or correspondent lender, and an online lender. Different lenders have different programs and a bank may reject you but a mortgage broker might have a program that works for your situation, so check around. Loan costs and rates will also vary, so get a couple of estimates and compare them to find the best deal.

How many properties can you buy? If you have the credit score (estimate your credit score), and the debt to income ratios (which change with each property you buy), you can pretty easily finance up to four properties. Once you go over four and up to ten, the number of lenders who can finance you gets much lower, but they are still out there. The underwriting criteria also may get much tougher, but still possible. Once you go over ten loans, it’s really hard to find lenders who will finance and the loan costs, interest rates, and terms will be less appealing, but still relatively reasonable. Lenders who do over 10 loans are called portfolio lenders.

In summary, this is a very good time to buy property, but you must educate yourself on rental property ownership, do your due diligence, and don’t think everything is going to be rosy and hassle-free, because real estate is hard work! Hopefully the hard work you do and issues you have to handle over the years will just be distant memories when you retire with a nice rental property income stream.

(Note: Many thanks to Robin Hill who contributed her guidance for this article. Robin is a San Diego-based mortgage lender for First Cal. She specializes in residential purchases and refinances for owner-occupied and non-owner occupied properties. She’s been in the mortgage business for the past 14 years).

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate.” Read useful tips for real estate buyers in his blog, Making Smart and Safe Real Estate Decisions. See more at ProfessorBaron.com.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.