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70 You've decided to become a rental property investor. You've done extensive research on the fastest growing markets for rental investment, and perhaps you've even decided to purchase your first property or add one or more to an existing portfolio. Now, it's time for one of the most important pieces of building your rental property business: finding the right financing partner. FINDING FUNDING Rental property investors have many financing options, each with benefits and drawbacks. Some options may be better suited for investors who are just beginning to build their portfolios, while others appeal to more experienced investors. Let's take a look at the options. Cash: Purchasing properties with cash frees investors from the requirements of banks or other financing partners. However, it limits the investor's purchasing power and ability to invest cash in other vehicles. All-cash purchases have also become more difficult in recent years as home prices continue to rise. Friends and Family: If you decide to go this route, it's a good idea to define the terms of your agreement, get consensus on the business plan, and consider placing your properties within an LLC. Consulting a real estate and/or tax attorney may also be worthwhile. Agency Financing: Fannie Mae and Freddie Mac have both announced programs designed to help rental investors refinance or fund the acquisition of new assets. Fannie and Freddie's programs allow owners of smaller-sized portfolios to find competitive, fixed interest rates and loan terms as long as 10 years. In commenting on the agencies' programs, experts have noted these programs may primarily benefit owners of 20 to 100 properties. Credit score, credit history, and income will be components of the application for Agency financing. Local or Community Bank Financing: Investors may find attractive financing options through a local bank as a result of in-depth local market knowledge. Small banks may also be familiar with business financing and equity partnerships, so if you have a business partner or are hoping to include other investors in your rental investment business plan, exploring a relationship with a smaller bank could make sense. As with agency financing, credit score, credit history, and income will be components of the application. Hard-Money: Hard-money lenders provide financing primarily based on the property (or properties) you're using as collateral for the loan. Typically they place more emphasis on the cash flow of the property, as opposed to personal income or debt-to-income ratios (as is the case with Agency or community bank financing). How your financing partner can make or break your rental investment business. I N D U S T R Y I N S I G H T / L I S A A B D Y - G R A Y TEAMING TO BENEFIT THE BOTTOM LINE