The fastest way to grow a rental portfolio isn’t saving for years. It’s finding the right loan to stretch your capital. Whether you’re a seasoned investor or buying your first rental, smart financing can lower the barrier to entry, amplify your buying power, and enhance your returns.
At ABL, we offer fast, flexible DSCR rental loans that require minimal paperwork. If the property’s cash flow can cover at least 1.2 times the monthly mortgage payment, there’s a strong chance we’ll approve you for a loan. See if you pre-qualify today!
Why Get a Loan for a Rental Property?
Financing a rental property has many benefits. Here are just a few:
- Scalability. A rental loan helps you buy more properties than you otherwise could, so you can scale your portfolio and compound your returns faster.
- Liquidity. Even if you can buy a property outright, opting for a loan helps you keep more cash on hand for renovations, repairs, and other expenses.
- Higher return potential. Financing can boost your returns if the overall return rate is higher than your mortgage rate (aka positive leverage).
- Tax breaks. As a landlord, you can generally deduct mortgage interest costs from your taxable rental income. Consult a tax professional to learn more.
Loan Options for Rental Properties
As an investor, how you finance a rental property matters. Consider these loan options:
Conventional Mortgages
Conventional mortgages are designed to finance primary or secondary homes, but they can also be used for rental properties. Most conventional mortgages require strong personal credit, regular income, and a debt-to-income ratio (DTI) of no more than 36%. As a result, loan approval can take several weeks, which may not be enough time to secure a property.
DSCR Rental Loans
DSCR loans get their name from the debt-service coverage ratio (DSCR), which is a property’s ability to cover mortgage payments with its cash flow. The higher the DSCR, the more likely the borrower is to keep up with loan payments. Since DSCR is the main criterion by which DSCR lenders evaluate rental loans, they require minimal paperwork and close within days.
At ABL, you can get DSCR loans for both long-term and short-term rentals (STRs). For STRs, we average the property’s cash flow over a year to determine the DSCR. That way, you can still take advantage of our DSCR loan program if your STR income is seasonal or irregular.
Rental Loan Refinances
Have a fix-and-flip or new construction project you want to convert into a long-term rental? Then you need a rental refinance loan. It replaces your previous financing with a long-term mortgage.
For example, let’s say you get a bridge loan to fund a renovation project. But instead of flipping the property, you want to turn it into a rental (aka the BRRRR method). A refinance can replace your short-term loan with a new long-term one once the property has stable tenants.
Blanket Rental Loans
As your rental portfolio grows, consider getting a blanket rental loan: a single loan that covers multiple rental properties. This can help you simplify loan payments and lower your total closing costs (since they’re spread over multiple properties). For example, ABL blanket rental loans can cover up to 10 properties at a time.
How to Qualify for a Rental Loan
Now that you know your options for rental loans, here’s how to qualify for one:
Common Loan Requirements
First, you must meet the lender’s basic loan requirements for the following:
- Credit score. Most lenders require a minimum credit score. At ABL, it’s 660.
- Loan size. Rental loan amounts must be within the lender’s approved range. DSCR loans from ABL are available for anywhere from $75K to $5M.
- Property type. Not all property types qualify for a rental loan. For example, ABL only finances single-family, multifamily, and condo rentals.
- DSCR. A minimum DSCR requirement helps protect lenders against borrower default. ABL’s average DSCR requirement is 1.2 (although lower DSCR programs are available).
- Loan-to-value (LTV). This is the percentage of the property that is financed. For example, ABL will finance up to 80% of a rental’s value.
Common Loan Terms
On top of meeting the basic loan requirements, you must agree to the loan terms, such as:
- Term length. This is how long you have to pay off the loan. ABL rental loans have 30-year terms, which minimizes your loan payments compared to shorter terms.
- Amortization structure. This is the period over which loan payments are calculated. ABL rental loans are amortized over a 30-year period, eliminating the need to pay a lump sum when the loan matures.
- Interest rate. This determines the cost of borrowing. The lower the rate, the more you save.
- Origination fees. Most lenders charge a fee (points) for processing your loan. At ABL, you can get rental loans with 0-2 points.
3 Best Practices for Financing Rental Property
Before you finance your next rental property, here are some best practices to keep in mind:
Optimize Cash Flow
The more cash flow your property generates, the more likely you are to qualify for financing (and the better the loan terms will be). Start by ensuring the rent is up to market rates and then look for ways to cut operating expenses without sacrificing tenant experience or property condition.
Keep Cash Reserves
A healthy cash reserve can help you cover unexpected repairs and vacancies and shows lenders that you’re more likely to keep up with loan payments.
Regularly Assess Loan Options
As interest rates and the broader housing market shift, consider refinancing your rental loan. This could help you lock in better loan terms and/or pull out cash to fund other investments.
Explore DSCR Rental Loans From ABL
With ABL’s DSCR rental loans, you can secure your next rental investment without getting bogged down in red tape. Whether it’s your first or your hundredth property, we’re here to help you maximize your capital, boost your returns, and grow your portfolio with confidence.
Contact one of our DSCR loan experts to learn more!