Sticker shock on Investment property rates

[Matthew Wright]

Hi BP. I am new to the world of real estate investing and am currently in the process of gathering information in hopes of buying my first deal in 2019. My past investments have been fairly conservative and after looking at the potential returns and benefits of the real estate world I am eager to get started. For my first investment I am looking for a SFH with a price range of 160k-220k. I would be using a conventional loan with 15-20% down, and the home would not be owner occupied. After running the numbers on the BP rental property calculator I have an idea of where I would need to be on the terms of the deal in order to secure decent returns. I spoke with the lender who facilitated my primary mortgage and had sticker shock when I was quoted rates north of 6% on a conventional loan with 15% cash down (which would erode my anticipated returns from the deal structure I am currently looking at). I am sure there are a ton of variables I am missing but I would like to at least have an idea of what range my financing is going to fall in before I start looking for a deal. Is a 6% loan rate on a conventional with 15% down out of whack? What other options do I have available for non owner occupied properties, assuming a conservative approach as this is going to be my first deal? Any and all feedback is appreciated!

[Jaysen Medhurst]

@Matthew Wright, welcome to BP and REI.

The loan you referenced isn't necessarily "out of whack." The interest is rate is higher than I'd expect and the down payment lower. Typically, investment properties require 25% down. I'd expect an interest rate in the 5s.

It will be worth your time to start talking to all the local banks and credit unions in your area. Find out what their rates and terms are. Ideally, you want to establish a relationship with one lender that you make your go-to.

I also recommend looking at other ways to purchase a property, like the BRRRR method or owner financing.

Good luck!