Loans on Rental HomesLoan for rental apartments
Mr. Russo has been a Florida property developer for two centuries. In the course of the property crises he purchased a dozen non-performing houses and converted them into rented apartments. Him paying for them all in hard cash. No. On today's markets, money is still the prime asset because loans for capital assets are prohibitively high.
The interest rate can be in the two-digit range, and the qualification for the loans is annoying. SRB2R, a mortgages firm in the ownership of the Blackstone Group based retail equities group, has just started to offer a mortgages program for investor that does not require anything from the borrowers except a 20 per cent down pay on the house.
All of the rental proceeds from the real estate are used to finance the loans. It is Russo's intention to use it to draw million of dollar the value of currency from the houses he already has. "We sit on detached houses valued at 6 to 7 million dollars," said Russo. "I' m gonna use the dough to buy more houses.
Investors must own at least 20 per cent of the shares in the real estate for a sale and 25 per cent for refinancing. Rental revenues from the real estate must be 33 per cent higher than the owner's cost, which includes capital, interest, tax and PITI. Or in other words, if it were a normal, owner-occupied home loan, it would be like a debt-to-income relationship of 67 per cent, but in this case the revenue is all predicated on the real estate, not on the borrowers.
"We do not review the borrower's income," said Matthew Weaver, VP of Finance of America Equity, another Blackstone firm working with B2R. Interest on the 30-year term will be between 6 and 8 per cent, about twice as high as the interest rates on a conventional owner-occupier mortgages, but well below the actual costs of investment loans.
The Fannie Mae and Freddie Mac have limitations on how many real estate an individual can own. SRB2R will borrow up to $750,000 per home, and there is no limitation on how many homes an individual can own. "You know, most people invest in money because it'?s so hard to finance. Commercially active creditors really have no taste for them," Russo said.
" Taking money out of his present real estate, Russo said he intended to build a $20 million rental property investment pipeline. There is a very buoyant rental market in Florida, as is much of the state, especially for single-family homes. The millennial is longer to buy houses, and tens of thousands of former house owners who have gone through enforcement are still trying to build up their loans without being able to buy them again.
"It'?s a good alcoholic beverage, I think. Obviously it satisfies a need," said Guy Cecala, CEO of Inside Equity Finance. "ýThe question I would have would be that rentals, by historical standard, are high now, and it is not so hard to have the rental more than the mortgages and insurances include.
" Mr Weaver claims that the mathematics used in granting these loans allows a small adaptation of the rental. "ýWhat we are looking at is about about 33 per cent higher in rent versus the PITI repayments, so you can see that there is a little bit of a cushion there to support some kind of minor dip,ý he said.
It' s quite clear for an investor who has purchased at the bottom of the real estate slide and is seated on almost two or three stock holdings on their houses. You see high rental incomes, so you don't want to sell the real estate, but you don't want to pay too much back.
It would be less attractive for fins as there would be pre-payment fins. It is a high-yield and relatively low-risk investment for Blackstone. Most of this interest comes from those who wish to make disbursement refinancings for the homes they already own. But the only downside to the overall credit rating, according to Cecala, is that if this is such a success, other creditors will enter the game.
The history has been revised to reflect the percentages of capital needed to fund a real estate asset and the FICO scoring requirements.