Your success as a real estate investor and the ability to grow your portfolio can depend on more than your tri-state property management partner: you also have to successfully qualify for loans. What might have been an easier task for you before COVID-19 could now be a challenge as the real estate and lending industries recover from the impacts of economic shutdowns and unemployment.
In our recent webinar, we heard from Eric Light, Senior Vice President at WSFS Bank. He walked through the current state of lending and the impact of COVID-19 on loans for real estate investments. If you haven't yet watched the webinar, here is a light overview of his insights.
Some Banks Are Lending; Some Are Not
- Before, during, and after the height of the pandemic, lenders still depend on risk analysis. If an investor doesn't show excellent potential to repay a loan, lenders won't risk it.
- With the COVID-19 impact on real estate over the past year, lenders now emphasize risk assessment before approving new loans.
- Some banks have determined that the risks are too significant at this time. They've stopped lending until the economy rights itself, and borrowers face fewer financial risks.
- However, other banks are still actively lending—but investors might have to work harder to get loans for rental properties.
Lenders Need a Good Story
Your story matters when applying for a loan. While it might seem like a lender is only interested in getting their money back (with interest), many lenders know that providing loans and helping investors succeed is critical to getting the economy back on track.
When applying for a loan, a history of success and a well-analyzed rental property go a long way to give lenders a story they want to hear. They love a good investment, and they want investors to succeed. Make sure your story includes:
- Who you are
- Well-researched plans for your new tri-state rental property.
New underwriting pressures have made lenders hesitant to take a risk on anyone who doesn't have a positive real estate investment story to tell—but that doesn't mean you need to give up. While first-time investors might struggle to get a loan right now, you're not out of options.
What Lenders Consider to Qualify
Will the current economy and your specific investor circumstances help you repay a loan? Lenders are placing a high-priority on Debt Service Coverage Ratios right now to analyze your potential to fulfill your loan or your risk of default.
Lenders want you to be able to repay your loan. They lose if you can't pay—and they don't want to risk placing an overwhelming financial burden on you if you're not set up for success.
- Ongoing nationwide employment challenges could make it difficult for your renters to pay the rent.
- Vacant tri-state area rental homes and apartment buildings leave investors without the funds to repay loans.
- If rent prices drop, it's difficult to generate enough income to stay current on loan payments.
The impacts of COVID-19 have created challenging circumstances for investors—but it's not time to give up.
How Can You Invest Now?
It might take a little longer to qualify for a loan right now, but lenders are lending. Partner with the right tri-state property management company to help tell your story and use these insights to keep investing now.
Consider Additional Investors
If the property you have in mind and your current financial situation (or 2020 success) isn't quite enough to 'sell' a lender on you, bring in another investor. The right investor with more assets or cash flow can sign on to your loan and add the support you need to secure a loan.
Bring Enough Documentation
Proving your lending worthiness might be more challenging after the economic disasters of 2020. Some lenders might require answers to a 'COVID Questionnaire' that digs into your financial situation through the past year and how you've adjusted to a dramatic change in the economy.
If you're self-employed, make sure you can document how you've survived, thrived, or righted your financial ship as the economy rebounded or your industry adapted to new challenges.
Look at Other Markets
People are leaving big cities for the suburbs. Renters have lost many of the things they love most about their cities without access to restaurants, shopping, or entertainment.
However, suburbs or outlying cities are showing more signs of life. These cities offer more housing and employment options with lower rents—creating an ideal opportunity to develop a real estate investment success story that lenders will love. In the tri-state area, investors have plenty of options to invest out of city or state.
It's Still a Good Time to Invest With the Right Property Manager!
Don't let the economy or lending challenges discourage you from doing more as a real estate investor. Adapt to the current climate, plan for a bright real estate future, and partner with the best tri-state property management company for success.
We've only scratched the surface. Learn more about how COVID-19 has impacted lending: Click to visit Rentwell's November webinar!