Since the real estate downturn, investors have stepped up their purchasing practices. They purchase distressed assets to convert into investment rental properties. However, there have been limitations for some investors requiring a loan. As many lenders added guidelines to loans, some investors were unable to acquire necessary loans for purchase.
To meet demand, private-equity firms are hoping to fill a special niche. The much needed liquidity will make funding easier for some investors, which can further lead to inventory shortages in key areas, while helping recovery in the market.
The new loans, however, are not without their own guidelines. Designed to meet affluent real estate investors (who collectively own the largest number of single-family home rentals in the U.S.), borrowers will typically need at least 25~30% equity in their real estate portfolio. Unlike Fannie or Freddie, there are no loan limits.
Lenders will typically review localized real estate market health, cash flow and financials of both individual property as well as the portfolio in whole, and experience of the borrower through vetting. Many firms won’t originate loans however for just a few properties, which will attract more savvy investors and institutional investors.
