FINANCING TURNKEY PROPERTIES
Since turnkey properties are move-in ready, it’s easier to finance homes that need substantial repair. Of course, you can certainly purchase a turnkey property with cash, and some established investors do so. However, you can finance a turnkey property through conforming and non-conforming loans.
Here’s what you need to know about getting a conforming loan for a turnkey property:
- Expect interest rates to be between 4% and 7%
- Maximum loan amount in most areas is $424,100
- Loan term of 15-30 years
There are also certain qualifications for getting a conforming loan, as with any loan you get from a lender. What are the qualifications in this case?
- 600+ credit score
- Down payment more than 5% in most cases
- Mortgage insurance for loans above 80% loan to value
- Reserves of three or more months
You can get a conforming loan at most banks and credit unions, along with other lenders across the nation that might have more competitive terms and flexibility.
OTHER LOAN TYPES FOR TURNKEY PROPERTIES
There are a few other types of loans for turnkey properties: multifamily loans, portfolio loans, and apartment loans.
- Multifamily loans - This loan is typically designed for those who are purchasing spaces like apartment buildings, or other multifamily complexes. You need a multifamily loan if you have a property with four or more units, and the qualifications are much different than a standard loan.
- Portfolio Loans - These loans often have fewer criteria or less stringent requirements that need to be met in order to obtain one, but usually come with much higher interest rates. They also can’t be sold on secondary markets to other lenders.
- Apartment Loans - Similar to multifamily loans, these are designed for the purchasing and/or renovation of apartment buildings. With this sort of loan, expect rates to be between 5%-12%.
Most of our turnkey properties here in Memphis are not multifamily or apartments, so you wouldn’t be searching for those types of loans. Those are best suited for those scenarios where you’ll have multiple units or multiple families occupying the property.
HOW TO START YOUR FINANCING
Now that you understand the differences between the various loan types for turnkey properties there are still some important steps to consider as you get ready to take the leap into real estate investment.
- Check your credit score- Before you do anything else, make sure you have a credit score above 600. If you don’t, then you’re likely to not qualify for a loan in this case. The bank needs to know that you have a track record of paying on time and aren’t considered a risk.
- Funds for a down payment- Make sure you have a minimum of 5% of the property value to offer as a down payment. Ideally, you should have more than 5% to really make the investment worth it. You won’t have to pay mortgage insurance if you have a down payment of around 20%. Mortgage insurance is designed to protect the lender in the event that you default on your loan.
- Reserves and liquidity- You need to have at least three months’ worth of reserves in case anything goes wrong. You need liquid assets proven to the lender, otherwise, they are likely to deny you because you’re too much of a risk.
- Choose a bank or lender you know- If you’re looking to invest in turnkey properties, then you probably already have some experience in owning a property and know of a lender. We recommend choosing a lender you trust and one who offers you the best rate.
Memphis Cashflow Can Help
If you think you’re ready to start investing in turnkey income properties, then reach out to us! We’re an experienced turnkey investment group that will always keep your best interests in mind. We cultivate a healthy inventory of properties and will help you determine which ones are a good fit to meet your goals.