How to Purchase and Finance a Rental Property

Bend, OR Real Estate Podcast with Christine Browning

Rental rates in the central Oregon market make buying an investment rental property tempting for many homeowners right now. How does that financing work, though?

Have you ever considered buying a rental or investment property? It's a great way to diversify your real estate portfolio. The two ways to do this are converting your home into a rental or pulling some equity out of it to finance a new property that you'll then rent out. Home values have gone up all over central Oregon, giving many homeowners significant equity in their property. To help me explain this topic, I've invited in Matt Bassitt from Northwestern Home Loans.
If you want to pull equity from your home to take advantage of the great rental market we have, there are different lending options. You typically want to have 20% or more equity put down when buying a rental property to avoid having to pay mortgage insurance, but some rental properties are profitable enough to offset this. You can also refinance your mortgage and convert your current home into the rental to buy a larger new home, for example. Whether you convert your current home or buy a new one can affect financing rates in this case.

The central Oregon rental market makes now a great time to invest in property.

Since the mortgage rates you get will be better on your primary residence, you can also refinance your mortgage and stay in the home as your primary residence if you can keep your mortgage loan-to-value ratio below that 80% mark. Then, you can use the equity you've pulled to buy a rental property with 20% to 25% down. Since rates can be 0.5% to 1% higher on a 30-year investment property loan, it can be a smart strategy to pull equity to buy your new residence, get the best possible rate, and then keep your old residence as a rental property.
With this route, there's an intent clause (in basically every loan type) you'll have to sign at closing stating you intend to occupy the house as your primary residence for the next 12 months. So there's basically no way to sneak this past your lender when it comes to investment property.
You can, however, refinance your loan and make a purchase simultaneously. It's common for purchases to be treated with a priority for refinances, which have a three-day decision period unless the property in question is an investment property already.
As you've probably noticed, this process is pretty technical and complicated. If you have any questions about it on the lending side, you can reach Matt Bassitt at 541-323-7000 ext. 202.
If you have any questions for me about rental property or about real estate in general here in central Oregon, don't hesitate to give me a call or send me an email soon. I'd love to hear from you!