How Refinancing a Rental Property Differs from a Refinance on a Primary ResidenceMost real estate investors are always looking for ways to increase the bottom line on the properties they own. While raising the monthly rent is certainly one strategy for accomplishing this, there are other ways, too, such as decreasing expenses.  Refinancing the mortgage on the property can prove to be a great way to reduce your monthly outgo on investment real estate – especially if the current interest rates are lower than they were when you initially purchased the property.

But the refinance of a property that is used as a rental can differ – at least somewhat – from refinancing your own personal primary residence. First, the interest rate on the investment property will typically be higher than the rate you could get if you were refinancing your home. That’s because if you get into a financial bind, lenders know that you’re far more likely to make the payment on your own mortgage than you are to make the payment on the rental property. And this equates to more risk for the lender.

Also, rental property mortgages are underwritten by traditional lenders, based on the assumption that you will collect income from a tenant. The amount of this rent is then added to your personal income in order to come up with a total amount of incoming cash flow.

When refinancing an existing rental property, most lenders will require you to provide evidence of a valid lease, as well as a rental history. Without being able to show this, you may not qualify for a mortgage refinance – at least not from a bank or traditional mortgage company.

Owning, managing, and financing rental real estate can be somewhat time consuming. But there are ways to reduce the amount of your own time that needs to be spent. By bringing an experienced property manager on board, you can delegate the day-to-day responsibilities, such as rent collection and maintenance. So, if you own one or more rental properties in the Orlando and / or the surrounding Central Florida area, contact us for more details.