Loan planning is an essential aspect of real estate investing. It involves understanding the limitations of loans that investors can obtain, the optimal order in which to obtain loans, and the types of loans available. In this blog post, we will discuss the importance of loan planning for real estate investors and provide insights into how to develop an effective loan plan.
The 10 Financed Properties Limitation
Fannie Mae and Freddie Mac are quasi-government loans that most lenders sell their loans to. Investors can obtain these loans until they have ten non-owner-occupant financed properties. However, their personal residence counts as one. Therefore, investors can have nine additional non-owner occupant finance properties. Any loans on single-family homes, condos, townhomes, duplexes, triplexes, or fourplexes count against the ten loans.
This limitation comes into play when buying a non-owner-occupant (aka investment) property.
After the ten finance properties limit is reached, investors can obtain additional investment properties using a portfolio loan, commercial loan, private financing, or creative financing. It is crucial to note that after the ten finance properties limit, investors cannot obtain new finance properties as non-owner occupant properties. Therefore, it is vital to use the first ten loan spots wisely, as they are typically 30-year fixed-rate loans with low interest rates.
The Benefits of Fixed-Rate Financing Loans
Fixed-rate financing loans are 30-year loans with low interest rates and are typically the best loan products investors can obtain. It is essential to use these loans optimally for larger-valued properties and loan balances. Suppose investors use these loans to purchase ten $100,000 properties today. In that case, they will have ten free and clear properties worth approximately $1 million once they are paid off. However, if investors use these loans to purchase ten $300,000 properties, they will have ten free and clear properties worth approximately $3 million once they are paid off. Therefore, when choosing between larger or smaller loan amounts, investors should consider the long-term benefits of larger loan amounts.
Investors can use alternative strategies to obtain loans that exceed the ten finance properties limit. For instance, married couples can file separate tax returns and alternate obtaining loans to obtain up to 20 loans in total. It is essential to plan ahead and separate the loans between the spouses to qualify for more loans if you know you’re going to want to exceed 10 and still get 30-year, fixed rate financing loans.
Loan planning is critical for real estate investors seeking to achieve financial independence through real estate investments. It involves understanding the limitations and types of loans available, the optimal order of loans, and the benefits of fixed-rate financing loans. Investors should also consider alternative strategies to obtain more loans. Seeking the advice of a real estate agent or lender can help investors develop an effective loan plan. With a well-designed loan plan, investors can achieve their goal of financial independence through real estate investing.