How to Refinance Your Investment Property?


Investment properties can be good money-spinners, and shrewd investors have mastered the art of flipping investment properties to earn good profits. However, there could be a strong reason for looking at raising funds.

Unlike most of the other types of borrowings where the disbursed funds can only be used for specific purposes, the proceeds of investment property refinance have no end-use restrictions. In other words, you are at full liberty to use the funds for whatever purpose you deem fit. This makes it a good option for creating liquidity in times of need. 

However, despite the appeal, it is necessary to handle the refinancing of investment property prudently to ensure that you get a good deal. Here is how you can manoeuvre through the challenging process of finding and getting yourself the best refinancing option. Before we get into the nitty-gritty, here is useful information that will better understand the system.L

To Refinance Commercial investment Property – Go for Low Hanging Fruits

Commercial real estate loans, refinance, and mortgages are always low hanging fruit and easily available to an investor. However, the urge to borrow needs to be handled with prudence. Do you have a pressing need to seek to refinance of investment property?

It is important to lay down a simple thumb rule when it comes to availing loans or mortgages or refinance – it effectively needs to be your last resort or the only option. Here are a few reasons that justify the need for seeking to refinance of investment property. 

(1) You may want to invest in some other property that is promising and a once in a lifetime offer. 

(2) You need urgent cash flow to meet a pressing requirement or an acquisition that cannot wait – a car, or an emergency fund.

(3) You are struggling to close another short term loan taken with extremely high-interest rates. 

(4) Your present interest rates are high, and you need to restructure the pay-out.  

Factors considered by lenders when processing refinancing requests

Various factors are weighed when a borrower places a request for a loan or mortgage. However, in the case of refinancing an investment property, the number of parameters that are assessed increases considerably. This is because of the perceived risks associated with investment property loans.

To put it quite simply, the lender looks at the lien from the priorities of the borrower. When it comes to fulfilling an obligation or letting a lien turn into possession by the lender, the borrower’s first choice is inevitably the residence, with the investment property slipping into second in precedence. Therefore, the risks associated with funding investment properties are regarded as high. Hence the borrower insulates the lending by assessing the following factors.

Derived calculations from Schedule E earnings – While your Schedule E earnings may look good on paper, the lender looks at it from a different perspective. The lender carefully considers the expenses, dues, and the exposure of the property to repayments. This calculation indicates the property holding earns the owner’s income, or if it is a liability. For instance, if the property earnings are more than all the expenses and repayment, then the acquisition returns an income. However, if the earnings are lesser than the total expenses and repayment, the acquisition is considered a liability. 

Several outstanding loans – This is an important criterion used by lenders when assessing the risks associated with refinancing. A borrower with multiple properties and outstanding loans is considered to be ineligible for refinancing. For instance, any investor with more than ten different properties with outstanding loan amounts 

What can you expect when you refinance your investment property?

The reasons for traveling the refinancing route may differ, but the outcomes offer you a set of benefits. It helps to understand more about these benefits so that you can plan your refinancing better. Your investment property is not only a money-spinner, earning income through rentals, but builds your equity in the property gradually.

As you slowly repay the mortgage, the principal amount that you have covered in repayment becomes your equity. Refinancing of investment property gives you the option of transforming that equity into cash, which can be used for other pressing needs. You could also use the refinance route to restructure the repayment to suit your present needs. For instance, you can speed up the property’s actual acquisition by shortening the term, or you could extend the term to de-stress your repayment. 

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