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Financing options for rental properties in Los Angeles

Financing options for rental properties in Los Angeles

Financing rental property projects can be quite challenging. Many factors influence rental property financing in Los Angeles. Factors like property tax and risk assessment, as well as of course, rents, determine the profitability of rental properties. This has also influenced real estate investors in several ways.

Here, our team of experts at Big Town Real Estate will examine the financing options for rental properties in Los Angeles.

What investment property loans are available in Los Angeles?

Our team of experts at Big Town Real Estate has identified four Real Estate Investment loans in Los Angeles. According to Rebecca Lake of Investopedia, they include conventional mortgage loans, hard money loans, private money loans, and equity loans. The best property loans have a combination of some factors. These factors include low rates, long repayment plans, and little requirements.

Here are the four types of investment property loans available in Los Angeles:

  1. Traditional Mortgage Loan: This is perhaps the most accessible and most common rental loan. It is a type of financing known as conventional financing. You access these loans through traditional lenders and mortgage loaners. Conventional loans are not issued by the government. In contrast, FHA loans are government-backed mortgages. Regarding the down payment requirement for real estate investment financing, many mortgage lenders require 20%- 30% of funds. However, there is a new program which started on November 18, 2023, whereby Fannie Mae would allow as low as 5% down on small multi family (2-4 plexes). This of course depends on your credit score and existing debts etc., but this new program is an amazing tool which allows “regular people” to become multi family real estate investors. 

2. Hard money loan: This is a short-term loan. This type of financing is based on the value of the real estate assets and the assets/experience of the borrower. Hard money financing is issued based on the property’s value and the hard money lenders faith essentially, the the buyer can either flip the property, or otherwise optimize the property to where they can re-finance the loan after a period of time. This advantage makes the best choice for flipping an investment property, and can also be used to perform a BRRRR, which is a great method to use to build a portfolio. 

Typically fix-and-flip loans, Lenders use the property’s repair-after-value (ARV) to determine if you can repay the loan. Hard money loans can be issued within days of your application. The pitfall here is that these loans come with higher loan interest rates, up to 15%. They are not long-term loans. You can include additional charges such as origination costs and closing costs. Hence, they are not good for long-term financing. You must have an exit strategy if you want to take on one of these.

3. Private money loans: these are loans obtained from friends and family members or other people who are private people. If you have wealthy well-meaning friends this is easy. The loan interest rates on these can vary greatly. It often depends on your relationship with the lender. These are great, but private people saying “here, borrow all this money from me at a nice interest rate” is obviously hard to come by. There are multiple courses, gurus, and other resources available though, which can guide you on how to come by these “unicorns”. Networking Groups, investor groups, and self-directed IRA groups, are good places to meet people with money to invest. The reality is, if people trust you and you have a good pitch and business plan, you may be surprised how many people have money to lend you. The key is, you must have a good pitch, and a truly good plan to get people their investments back along with some returns. Losing other people’s money is a very good way to get in serious hot water, both reputationally and legally. If you can’t be virtually certain you are going to get your investors what you promise them back, do not try this.

4. Home equity loans: if you are already a homeowner, this may be the right loan type for you, you can draw up equity loans on your mortgage, up to 75-80% on second mortgages, and up to 90% on HELOCS (home equity line of credit)  A HELOC is essentially a credit line on your house, where you can withdraw money from the equity similar to a credit card, and similar to a credit card, pay the lender each month. HELOCS can go very high, $250k, $400k, are not atypical numbers for these credit lines, depending on the equity in the house. If the borrower has enough equity and good finances, the sky is the limit on these. Each varies in interest rates and loan terms. Home equity loans typically have higher interest rates than regular mortgages, and variable interest rates that are influenced by the prime rates. HELOCS are the most versatile way to get money out of existing property however, and if you have built up equity in your primary residence, a HELOC is probably the best way to come up with capital for other deals.  BTRE made a video on social media about this topic, and the link to the video is here.

Where can I find hard money lenders for rental properties in Los Angeles?

You can find a hard money lender through various means. One is through directories and platforms like Forbes Advisor. This is the easiest way to locate rates for hard money lenders in Los Angeles. For example, Robin Rothstein of Forbes has listed the best hard money lenders in the country, including LA. The list is categorized based on each lender’s understanding qualities. These include interest rates, accessibility, closing rates, and more. Biggerpockets.com is another great resource for any investor, and has tried and true vendors listed, for various real estate related things, including loans.

From our research at Big Town Real Estate, other places include networking events and real estate investor clubs. These are events and gatherings you should not miss if you are looking for a reputable lender. Another option is through referrals and recommendations.]

Self Directed IRA and 401k groups and advisors are also good places to go, as many high net worth individuals with self directed retirement accounts use the money to lend out as hard money or private money lenders. 

What financing options are available for rental properties in Los Angeles?

We at Big Town Real Estate have identified four major options for financing rental properties in LA. According to Ben Grise of Forbes, there are four options available.

First, you can finance rental properties with cash. These are individuals who have enough money to purchase their ideal property. Paying in cash offers significant discounts and saves you from interest expenses involved with other options. However, the property may not yield as much return on investment as other options would.

Second, you can finance from private lenders. This option can offer flexibility but usually comes with higher interest rates. You can also use hard money financing. These are short-term loans based on real estate assets. This is a great option if you are into flipping rental properties.

Finally, you can obtain loans from traditional mortgage lenders. That is the conventional loans. This is the most common option. However, they are not easily accessible because you have to maintain a high credit standing. Commercial banks and credit unions operate a strict loan application and prolonged loan process.

What types of multifamily investment property loans are offered in Los Angeles?

There are several types of multifamily loans in LA. According to Shravan Parsio of Forbes, two government-sponsored financial institutions maintain to provide stable funding options for multifamily properties. These are the Fannie Mae and the Freddie Mac loans. Fannie Mae multifamily loans offer options with fixed rates for various uses. On the other hand, Freddie Mac multifamily loans are ideal for smaller investors. This is essential for investors who want non-recourse financing.

From our research at Big Town Real Estate, other options include HUD multifamily loans and Bride option loans. Bank/credit union loans and CMBS loans are also available.

Can I do a cash-out refinance for my rental properties in Los Angeles?

Yes, you can cash out refinance for your investment properties in Los Angeles. According to Terry Painter of Apartment Loan Stores, you can take cash out refinance loans on your property up to 75%. This will allow you to pay off your current mortgage. After that, you buy a new mortgage at a lower interest rate or longer term.

What private money loan options are there for rental properties in Los Angeles?

From our research at Big Town Real Estate, we found that the option for private money loans is private money lenders.

Also, friends and family can provide private loans to rental property investors. However, it can destroy the relationship you have with your friends or family members. This happens when you default to pay.

What real estate investor loan programs are available in Los Angeles?

Many real estate investor loan programs are available in Los Angeles. According to Ben Grise of Forbes, traditional loans are the most common. Others include hard money loans, multifamily loans, and private money loans.

From our experience at team Big Town Real Estate, the federal housing authority loans are the most popular. It requires a 3.5% down payment with a credit score of 580 or higher. Others include USDA and VA loans.

What is the difference between rental property loan or a find fix and flip loans?

For one, they differ in purpose. According to Randa Kriss of Nerdwallet, is used for financing investors who want to buy, renovate, and then sell the property. Rental property loans fund investors who want to make a rental property purchase and rent it out for monthly returns.

What bridge loan options are there for investment properties in Los Angeles?

There are many bridge loan types for rental properties in Los Angeles. According to Kiah Treece of Forbes, these options vary greatly in terms of interest rate and loan term. These options include conventional, hard money, and fix and flip bridge loans.

Financing in real estate can be a hard nut to crack. It is necessary you employ the services of an advisor to help you understand real estate investing. You can also contact the state’s loan officer. For more information on financing rental properties, contact us at Big Town Real Estate.

Sources

Investopedia (2024). The Complete Guide to Financing an Investment Property. Available at: https://www.investopedia.com/articles/investing/021016/complete-guide-financing-investment-property.asp

Robin Rothstein (2024). Best Hard Money Lenders Of 2024. Available at: https://www.forbes.com/advisor/mortgages/real-estate/best-hard-money-lenders/

Forbes Real Estate Council (2021). Four Options To Finance A Real Estate Investment. Available at: https://www.forbes.com/sites/forbesrealestatecouncil/2021/01/25/four-options-to-finance-a-real-estate-investment/?sh=5cf26fec4d28

Forbes Books Authors (2021). The Financial Structure Of Multifamily Real Estate Investing. Available at: https://www.forbes.com/sites/forbesbooksauthors/2021/06/14/the-financial-structure-of-multifamily-real-estate-investing/?sh=6940d87e3f78

Apartment Loan Store (n.d.). Los Angeles Cash Out Refinance. Available at: https://apartmentloanstore.com/los-angeles/california/cash-out-refinance

Forbes Real Estate Council (2021). Four Options To Finance A Real Estate Investment. Available at: https://www.forbes.com/sites/forbesrealestatecouncil/2021/01/25/four-options-to-finance-a-real-estate-investment/?sh=6a560f534d28

NerdWallet (n.d.). Fix-and-Flip Loans: How Financing Works for House Flippers. Available at: https://www.nerdwallet.com/article/small-business/fix-and-flip-loans

Forbes Advisor (n.d.). Best Bridge Loans Of 2024. Available at: https://www.forbes.com/advisor/mortgages/bridge-loan/

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