There are generally two schools of thought when it comes to paying off a rental property. Some investors are in a rush to pay off rental properties as fast as they can because after the property is paid off, they’ll be able to leverage more cash flow which they can pocket as income, complete needed repairs, or acquire additional rental units.
Others, however, currently need more operating capital on a monthly basis, or require an added degree of flexibility with payments so they can have more cash on hand to snap up other promising rental investments—in which case a 30-year rental loan from JCAP Private Lending is the ideal solution to your funding needs. Here’s a breakdown of the unique advantages that our 30-year loan program can offer you so that you can accomplish each and every one of your short- and long-term real estate investment goals. Contact us today to see how you can lock in a competitive rate for the next 30 years.
JCAP Offers DSCR 30-Year Rental Loans
The 30 Year Fixed DSCR loan lets you qualify for a loan just on the performance of the property. What exactly is DSCR? The term stands for Debt Service Coverage Ratio. The DSCR loanis perfect for savvy real estate investors who do not want to use their tax returns to qualify for a loan. The DSCR 30 Year Fixed Loan uses the property’s Rent(NOI) compared to its debt service to approve you for your Rental Property Real Estate Loan. The DSCR loan generally works if your Rental Income covers the expenses of the property. Unlike Bank loans and Fannie Mae loans, the DSCR program is easy to qualify for, has no maximum of property owned and can be used for entity owned properties.
Short-Term Loans Aren’t Saving You as Much as You Think
Say you obtain a 15-year, $200,000 loan on a rental property at a 4 percent interest rate, the payments will be $1480 a month. Over the 15 years of that loan, you will pay $66,286 in interest. With a 30-year loan at 4.5 percent interest, the total amount paid in interest over the life of the loan will be $164,812. On the surface, it looks like you are saving almost $100,000 by getting a 15-year loan. However, you are paying interest over 30 years on one loan and over 15 years on the other, which is deceiving. The payment on a 30-year loan is only $1,014 a month, which is $466 less a month than the 15-year loan. If you were to take that $466 a month and put it back into the 30-year loan each month, the 30-year loan would cost $79,508 in interest and be paid off in under 17 years. It definitely costs a little more to have a higher interest rate, but over 15 years that is only $1,100 more each year. As time goes by that money is worth less and less due to inflation.
You will pay less interest on a 15-year loan than a 30-year loan. However, you are paying a higher payment every month on the 15-year loan. That extra money can be used for many things that will make you much more money than that amount in interest you save. You can save up the cash flow to buy more rental properties. You can use the money to build an emergency fund. You could also pay extra to the mortgage and if you ever need the extra money later, you can stop putting extra money into the mortgage.
Another huge factor when considering whether to use a 15 or 30-year loan, is qualifying for more properties. When lenders evaluate an investor, they use debt to income ratios. A 15-year loan will have a higher payment and increase your monthly debt payments. The higher your loan payments are, the less cash flow you will have, and it will be harder to qualify for new loans. Even if you are cash flowing with a 15-year loan, if you can only count 75 percent of the rental income, you may show a loss each month. If you have many rental properties showing a loss, it may be challenging to qualify for new loans. A 30-year loan with its lower payments will make it easier to qualify for more property.
If you are interested in getting into the 30-year rental loan space, reach out to our team today. We can help you fund your next loan within one week of receiving your application! Inquire today to get pre-approved.