It’s no surprise to anyone that 2017 will be a year of change and uncertainty. A new administration in the White House ushering in new trade, tax, and spending policies will have a major impact on the U.S. and global economies. So, too, will the actions of the Federal Reserve.
Experts agree it is too early to provide a definitive prediction of where the economy is headed, but many anticipate that higher inflation and rising interest rates are likely scenarios for 2017 and beyond.
For rental property owners who may be looking at refinancing, now is the time to act. Within 10 days of the election, mortgage rates had already ticked upwards by a one-half a percentage point. And on December 14, the Fed hiked its benchmark interest rate for just the second time since the financial crisis of 2008.
With the Fed expected to approve additional increases within the next several months, there is a good chance interest rates will continue to rise in 2017. That means there is some urgency to lock in rates within the next few months.
For individual investors, there are a number of reasons that may make this a good time to finance. You may be looking to add more leverage, or you may want to refinance a home in your portfolio to make further improvements while enjoying a better rate so you can get a higher rental cost/fee later.
Our No. 1 recommendation for 2017 would be to lock in long-duration capital. Of course, you’ll want low interest rates, but there are a number of other factors you should look for when shopping for the best refinancing deal.
The Market Outlook
Even with rising interest rates, the single-family rental market remains a good investment. “Real estate continues to offer an attractive investment opportunity, relative to other fixed income investments,” says Anthony Cazazian, Chief Investment Officer and President of Portfolio Services for Renters Warehouse, one of the fastest-growing and highest-reviewed residential property management companies in the United States. “The Single Family Rental (SFR) asset class, in particular, offers attractive yields, and the ability to invest is becoming easier with better technology and services offered to SFR investors.”
Cazazian foresees continuing increases in rentership vs. homeownership, which should support higher rents and values in the next couple of years. Increasing rental demand, combined with limited supply and tight credit for homeowners, along with other positive macro trends, will continue to drive “Renter Nation,” he adds, making single family rentals an attractive investment. “The evolution of online marketplaces, national lenders, and national, third-party property management companies will make it easier for investors to acquire, finance and operate SFRs across multiple markets in the years to come.”
The interest rate climate does make revisiting your financing terms an immediate necessity, Cazazian affirms. “We expect many of our investors to refinance sooner than later due to rising interest rates, which could lead to decreasing values or lower HPA (home price appreciation). Investors may want to focus on assets where more of the expected return is through cash flow rather than HPA.”
Market Keys: Low Rates, Flexibility
Refinancing a residential rental property is more challenging than traditional primary residential financing. Among the challenges investors face are higher loan rates, stricter loan-to-value (LTV) requirements, and more stringent credit requirements. Many lenders view the risk of lending to property investors as substantially higher than the traditional market.
Those who serve the market need to be extremely knowledgeable with a track record of success.
When searching for the best financing options, investors should look for an experienced lender that specializes in serving the needs of the residential property owner. Low rates are important, but so are long terms that will insulate you from climbing rates in the future.
An ideal scenario would be to find a fixed-rate loan with a long term—say 10 years—but with flexible prepayment penalties. That gives you the best of both worlds, allowing you to leverage your money to maximum effect.
A couple of examples: If you refinance with long-duration debt, you still have the flexibility to refinance out partners who may want to move onto other investments. Conversely, you may want to double-down with your capital and buy or develop new properties. The cash-out refinancing capability gives you the flexibility to do either of those things.
Flexibility also means the ability to close deals when—and how often—they need to. Today’s investors often have multiple properties in multiple markets—sometimes even in multiple states. Often, the key to making this work is partnering with a lender that accepts cross-collateralization—i.e., using the same collateral for multiple properties. This is why 5 Arch Funding takes pride in the unique offerings and terms it makes available to its clients.
A Customer-Centric Approach
Finding a lender that is customer-centric is another important consideration. Seek out a company that’s laser-focused on providing the right experience for its customers—one that will act as a valued partner and advisor, leading investors through the lending process and providing the loan product that’s right for them.
Customer-centric also means being fast and efficient during the financing or refinancing process. Residential property owners live by the adage “time is money,” so speed of execution is essential.
The goal is to find a lender who can help you get a deal done—no matter how complex—in very short order. The best companies, like 5 Arch Funding, can do this. The initial contact to closing is accomplished in two weeks or less.
Partner With an Experienced Lender
As a lender that meets all of the above criteria, 5 Arch Funding has built a premium platform for strong borrowers and renters. Our newest initiative with Renters Warehouse is an ideal case study in how 5 Arch Funding’s exclusive rates are bringing value to real estate investors eager to expand their portfolio—and their profits.
Renters Warehouse’s unique centralized services model drives standardized operations and reporting, making it easier for the company’s 12,000+ investors to invest across multiple markets. Many of these investors are in a growth mode, searching for new opportunities to grow their portfolio within Renters Warehouse’s turnkey Rent Estate program.
Having an experienced lender like 5 Arch Funding will enable these professionals to navigate the refinancing process smoothly and efficiently. This is a key consideration for their future success. As Cazazian reports, “Assuming a cash-out structure, refinancing with competitive terms will provide the necessary capital to acquire more assets and more strategically grow your investment property portfolio.”
We work with investors looking to fund a variety of different properties by offering flexibility in funding and terms, as well as flexibility around the composition of their portfolio. Regardless of where the market goes in the future, we’ll be there and we’ll help our customers get where they want to go.
Before starting this firm, we actually fixed, flipped, and sold thousand of properties ourselves. We’ve been in this business. We’ve lived it. We understand it. We know your concerns and can educate you about what it takes to succeed.
An Investor’s 2017 Game Plan
- Lock yourself in today before rising interest rates lead to a more difficult economic climate.
- Look for flexibility in funding and terms, which will give you the ability to take advantage of cash-out opportunities with no prepayment penalty.
- Look for a company that will support your geographically diverse portfolio.
- Look for a company that can close a deal quickly. The best companies are able to close a deal in two weeks or less.
- Work with a well-established company that knows and understands the market and can be a trusted advisor on how to leverage your position most effectively.