Investing in rental or commercial real estate is a common approach for those planning an alternative income stream, especially during retirement. Phil Purcell, Hanscom FCU VP of Commercial Lending, works with members daily to determine appropriate investments and help them prepare their finances.
Here, Phil answers the top five questions he gets about investment properties and commercial lending.
What are your rates?
It depends. Rates are influenced by the amount you want to borrow, the type of loan you qualify for, the collateral you are using and your credit history. Commercial lending is very different from getting a mortgage for your own home. You should always talk to your lender about your plans at the beginning, so you can work out any issues and ensure a satisfactory outcome.
Can I take cash out of an investment property?
Yes, if you have sufficient equity in your investment property. Typically the maximum loan-to-value allowed is 80%. Refinancing an investment property can yield cash out for a down payment on a new property. To protect your investment, be sure you have thoroughly researched your purchase. You will need an estimate of renovation expenses, potential income and other information to share with your lender.
Do you make Small Business Administration loans?
Yes, we participate in SBA financing programs. For many members, the flexibility of an SBA loan is a good fit, but it may not be for every situation. You need a lender that will partner with you to be sure you meet eligibility requirements and get the most favorable terms.
Do I need a down payment on an investment property?
With a commercial loan for investment purposes, investors typically will be required to put a down payment of 20 to 25%. In some cases, other collateral can be used in place of cash – an unencumbered investment you already own, for example. These techniques are more complicated than a typical purchase. Work with a professional in this case.
Can I use a rental property to produce income in retirement?
Yes. You can structure your loan on a rental property to be paid off around the time you plan to retire. That way, instead of paying debt service, you would be earning those monies as income. The building’s fair market value appreciation functions as a nest egg for future expenses or investment. Plus, you may realize some tax advantages through mortgage interest and depreciation.
For more information about commercial lending and investment property financing, contact Phil at 781-698-2186.