Whether it is a rental in Bryn Mawr, Robbinsdale, Crystal, North Minneapolis or Wayzata… if you are buying an investment property you are looking for a return on your investment for the money that you have to leave in the property. Here are some thoughts on Financing Rental Property in a LLC.
I am sure everyone differs on what their required ROI is… whether it is a certain percentage or “$500 a month!,” but the point of investing is to make a better return than you may likely receive elsewhere.
Financing, along with purchase price, is one of the most important factors in predicting cash flow and here are a few options that I have seen recently that are common when financing an investment:
- 20% of acquisition price down with a 5 year fixed rate amortized over 20 years at about 4.25%
- 25% of acquisition price down with a 5 year fixed rate that resets the rate after 5 years/ loan has a ten-year term & is amortized over 20 years at about 4%
- Buy home with cash, complete the rehab and try to finance off the improved price for 5-10 years fixed and amortize over 15 years at about 4%
- This is the Unicorn of financing…. hard to find!
- If you can amortize over 15 years… it will likely bring your rate down
- Ask lender about closing costs, appraisal cost and the origination fees and negotiate.
- Use smaller and more local banks that understand the area
- Look at Credit Unions
- Stay away from the huge banks… waste of time
- Get a spreadsheet that helps analyze the expenses and cash flow expectation
- Don’t forget to project R&M- at least 1 month’s rent annually
- Don’t forget to project Vacancy… I use 10% vacancy which is usually high and a conservative projection
Start a relationship with a bank or credit union… it is not always about the lowest rate but how that bank is willing to work with you, do they know your name when you call and their flexibility and ability to grow with you.