It’s a well-known fact that one of the safest and surest ways to gain wealth and generate steady income is through the ownership of investment real estate. That’s because the owner of an investment property not only enjoys the opportunity to generate income but also may see the value of the property appreciate through the years. Some consider real estate to be an excellent hedge against inflation. Often, investors will acquire a mortgage loan through portfolio lenders to facilitate purchasing such property. Then, they let the rents pay the mortgage and generate an even higher return on their investments through appreciation. Consider how using non-QM loans, such as a DSCR mortgage, can also help you reach your retirement goals.
DSCR Loan Rising in Popularity for Investment Properties
With as little as 15% down, an investor can purchase residential real estate and qualify for a mortgage. Many types of mortgages offer financing, but traditionally, the most popular loan type is a loan underwritten to Fannie Mae and Freddie Mac (Conventional Mortgage) standards.
However, as portfolio lenders, we’ve seen the use of non-QM loans, and specifically, the use of DSCR mortgages, increase exponentially in the past several years. The reason for that growth is due to the program’s flexibility related to qualifying based on the cash flow of the property and not the individual borrower.
Investing in Real Estate to Reach Long-Term Financial Goals
Owning investment real estate is often seen by many as a safer investment than investing in the stock market. One reason for this is that people typically have a greater understanding of real estate. Most people have personally been a renter before and see that a great many people need and have to rent. They also see over the years that the value of real estate goes up, and so does rent.
Of course, you can also physically touch and see your investment in a way that you can’t with investments in the stock market. One can suppose that if you own an investment property and take care of it and keep it rented, it will continue to generate rental income and continue to go up in value. Most average investors don’t really understand why their investments in stocks or bonds went up or down, and they aren’t very predictable either.
Managing an Investment Property
One of the drawbacks of owning an investment property is managing it and taking care of it. Some handier people will certainly not mind this aspect of this type of investment. Still, many investors will often have a property management company manage all details related to managing a rental property. This includes reviewing tenant applications, collecting rents, monitoring the property, and coordinating repairs when needed. Property managers typically just take 8-10% of the property’s gross rent for their fee.
Using Non-QM Loans Towards Retirement
As portfolio lenders, we have also seen an increased interest in purchasing vacation rentals by investors looking to prepare for retirement or who are already retired. With services like Airbnb and Vrbo, owning and managing a vacation rental has become a very popular way to generate income from a property and still have personal access to the home. Imagine owning a condo at your favorite vacation destination and generating enough revenue from the property when you’re not using it to cover the mortgage payment and then some.
Talking to Portfolio Lenders About Your Options
There are a great many pros and cons to owning investment real estate. Before applying for non-QM loans, people should do their own research and talk to a qualified Mortgage Advisor and Realtor.
