Banks don't like to give Texas rental property loans to people with irregular incomes. So if your self-employed, you might think there is no way to buy into rental properties, but you'd be mistaken.
Because you can always use hard money, but if you do a google search for this term you might end up thinking to yourself, "so they don't care about how much money I make, and they charge over ten percent in interest, it sounds like a scam."
But hard money is a legitimate way to finance short term real-estate purchases. The high-interest incentives you to pay these loans back quickly, so hard money is often used to flip houses.
But what if you want to hold onto a property for a long time?
Using hard money as a source of rental property loans benefits the self-employed and those in unique income situations.
Say there is a freelance graphic designer. Every three months or so he earns a significant commission on his long term projects. Every month paying his bills remains a careful balancing act, but he manages.
Renting out a house seems like the perfect way for him to earn a steady income. He scouts out a cozy little two-story house in a comfortable suburban development.
Given his excellent credit score, getting a mortgage shouldn't be a problem right? Well, bank after bank denies his application, because on a monthly basis, he's not making enough to pay his bills. Nevertheless, he can pay his bills, so what gives?
It's just that on a month to month basis, his debt to income ratio doesn't meet the banks' standards.
He looks on real-estate investment forums about situations like his, and he hears about hard money. The initial terms scare him, to say the least, 10 percent interest, over 12 months with a balloon payment due at the end. Yikes, but just before he closes the tab he reads:
"You can use hard money to refinance to a conventional loan." Knowing there's a way out, he bites the bullet. Hard money financing allows him to buy the house, and he even has a little money left over to bring his rental into the 21st century.
The attractive interior attracts a long term tenant who is just so pleased with the condition of the home that they agree to sign a 24-month lease.
Once he's got a long term tenant under contract, he goes back to the bank and applies for refinancing. The contractually obligated monthly rental payments will cover the cost of the new mortgage, on a monthly basis, and so, at last, the bank is happy.
In fact, that little bit of rehab work he did boosted the property’s value. So refinancing allowed him to pay off his initial loan and covered those steep interest payments, which he was so afraid of in the beginning.
Don't overlook the benefits of hard money when it comes to rental property loans. It may be expensive at first, but you can always refinance later.
Hard money remains an excellent option if you'd like to earn a steady income from rental properties. No matter what your current income situation is, don't let the bank stand in your way and keep you from getting into the rental business.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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