Looking to Buy a Residential Rental Property?

Here's what to Consider.

Regardless of political or economic shifts, people will always need a place to live. Because of this, many people view residential rental real estate as a highly profitable, safe way to accumulate wealth — and it certainly can be. In fact, purchasing residential real estate properties is a terrific way to jump-start an investment portfolio.

Buying Residential Rental Property

Buyers learning how to invest in rental properties should consider single-family residential units in areas they are familiar with. This ensures they will be comfortable managing the property.

Single-family rental properties can provide reliable cash flow for savvy investors building wealth through real estate. These properties can be transformed into dwellings for future resale purposes as either an investment property or a primary residence. Single-family housing tends to remain strong year after year, meaning investing in rental property is often a viable option for beginners.

To achieve the best results, though, investors should work with experienced bankers that embrace and understand residential investment property lending. Selecting a lender that is actively engaged in the residential rental market is a critical step in building an effective investment portfolio.

Tim Nash
"Investors should work with experienced bankers that embrace and understand residential investment property lending." Timothy C. Nash
President / CEO

Taking an In-Depth Approach

At American Bank of Freedom, we regularly help people investing in rental properties take out commercial loans to purchase single-family as well as multifamily residential properties. However, our approach goes beyond simply looking at appraisal value. Instead, we focus heavily on estimating and analyzing cash flow, and we use a number of factors and approaches to ensure the loan is a good fit for the borrower.

For example, we carefully consider the buyer and the location of his or her desired property. Our most successful borrowers purchase rental structures in areas they know; they were often raised or went to school in the area. Either way, this means they have a deep understanding of the community. The more familiar they are with the area, the better they’ll manage being landlords or owners there. This is critical, as active property management requires discipline and seriousness.

Besides location, we analyze the potential cash flow the property could generate. When it comes to investing in rental properties, this matters more than appraisals. We conduct appraisals when someone wants to buy a rental property because appraisals certainly demonstrate the “here and now” value, but they cannot predict what happens during economic downturns.

We also evaluate each investor’s plan for long-term success. This is because we are not a transactional lender: We strive to create relationships with our borrowers instead of one-deal experiences. Serious buyers normally aim to own at least 10 rental properties, so this tends to work in their favor. Handling multiple properties with one expert lender not only lowers risk, but also allows investors to scale their passive income stream and continue to pay expenses.

This is not to suggest that we’re opposed to working with flippers. In fact, it is quite the opposite. Flipping can be incredibly lucrative and allows early investors to have capital to build wealth through real estate.

According to research from Attom Data Solutions, 62% of the hottest major metropolitan areas in the U.S. have seen increases in flips year over year.

Nevertheless, flips don’t bring the long-term sustainability and steady income of carefully considered single-family rental property investments.

In other institutions the majority of rental investment lending revolves around the appraised value. At American Bank while the appraisal is a necessary part of the process it is only a part. Our lenders are a partner in the process and dig deeper. Making our relationship a more personalized experience geared towards long term success.

Lending in Action: What to Expect

So how does securing a rental property loan from American Bank of Freedom work? We follow a few simple strategies to determine whether the investment is the right fit for you. However, potential borrowers who consider the following tend to have more streamlined conversations with our lenders:

  1. Sketch out the business plan. Behind many successful businesses is a carefully crafted plan; the same is true for real estate investments. If you want to invest in multifamily real estate, we’ll set up a meeting to go over your strategy and uncover any overarching goals.

    As an investor, you’ll have a unique approach and set of goals. You might be rehabbing and flipping your first real estate investment, for instance, or you might want to renovate and rent out a property. The more our experts know about your strategy and goals, the more we can help you maximize your returns.

    Before meeting with our expert lenders, consider your business plan: Do you have an idea of what that might be? At the very least, come prepared to discuss the properties you currently have (if any), their location, and how you have them structured.
  2. Get to know the neighborhood. Come ready to discuss the neighborhood you’d like to purchase real estate rental properties in. Our full-time collateral-management professional considers each neighborhood’s rental rates and finds comparable properties. This allows us to not only drill down into the true quality of the property and area, but also to make personalized suggestions for each investor.
  3. Keep the conversation personal. Helping people make wise decisions with their money is a significant part of our mission, and ongoing education is critical for any borrower’s success. For this reason, we encourage borrowers to meet us in person and approach each discussion with an open mind. We’ll also ensure that lines of communication stay open throughout our partnership.

    By acting as a partner rather than a gatekeeper, we’ll help you move from having a modest amount of capital to building a reliable income funnel fueled by housing investments.

    Whether you’re a novice or seasoned investor with ample money and stellar credit, taking out a personalized rental loan with American Bank of Freedom to purchase properties can be a game changer. We always welcome the opportunity to help build client wealth and beautiful, thriving communities.

If you want to learn more about securing residential rental properties, simply contact the experts at American Bank of Freedom.

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