Co-founder & CEO

Head Of In-Lease Experience

If you're in the market for investment property, learn about financing, credit scores, and how to choose the best mortgage lender for an investment property.

How to Choose a Lender When You Want to Buy an Investment Property

In preparation for choosing a lender for your investment property, you’ll need to familiarize yourself with loan qualifications and underwriting requirements and decide which factors to consider when choosing a lender. With some preparation, you can position yourself as an ideal candidate for lenders and be prepared to present the best offer when you find your investment property of choice.

What to know about financing an investment property 

If you are financing a rental property investment for the first time, it’s critical to understand that it will be more challenging to qualify for an investment property loan. Lenders consider real estate investment loans to be higher risk than loans for primary residents.

If you want to make the qualifying process more manageable, familiarize yourself with the underwriting standards used for investment property financing. In general, you’ll need to show that you can afford your existing mortgage and the monthly loan payments on an investment property. Underwriters will also consider your down payment amount, credit scores, and debt-to-income ratio and evaluate your current savings.  

Down payments for investment properties 

Real estate investors should expect to make a larger down payment than they might have with their primary residence. When purchasing a primary home, you may have qualified for a loan with as low as zero to 3% down. In contrast, you should expect lenders to ask for a larger down payment, often between 20% and 35%. A larger down payment will also help you secure better terms for your loan. 

As with a residential mortgage, lenders will use your credit score as a determining factor in the loan pre-approval and underwriting process. While everyone’s circumstances are different, lenders typically like to see a minimum credit score of 680. If you have a credit score at or above 740, you can expect better interest rates for your investment property loan. 

The loan underwriter for your investment property lender will use DTI to evaluate your future ability to repay your loan. DTI is calculated by measuring the percent of your monthly income that goes toward paying off debt. If you currently have a mortgage, car payment, or student loan, those debt payments will limit the amount of money your lender will be willing to offer you for an investment property loan. 

Ideally, you want a DTI that falls between 36% and 45% to qualify for a rental property mortgage. Remember that future rental income is not factored into the debt-to-income (DTI) calculations. 

In addition to reviewing your down payment, credit score, and DTI, underwriters will look to see if you have enough money in savings to cover 3-6 months of mortgage payments. Mortgage payments include the loan principal, interest, taxes, and insurance. The more savings you have access to, the more likely a lender will approve your investment property loan.

Additional underwriting requirements for real estate investment financing

In some cases, loan underwriters will ask for additional documentation for investment property financing. 

Additional underwriting requirements for investment properties can include:

Documentation that you are buying the property for business or investment purposes

Operating agreement for your business entity, if applicable 

Lease agreement (if the property already has a tenant in place)

We encourage you to discuss these requirements with your real estate agent and potential lenders. Understanding what you need for underwriting can help you be more prepared and quickly act on opportunities. 

How to Compare Mortgage Lenders for an Investment Property 

Once you have a clear idea of what factors will influence the pre-approval and underwriting process, you can begin to compare potential lenders. Finding the right lender will help eliminate headaches as you progress through the process and can ensure you make financially sound and advantageous decisions. 

Types of investment property loans a lender underwrites

As you begin your research into potential lenders, you’ll need to ensure that any potential lenders will underwrite your chosen type of loan. Not every lender will underwrite every kind of loan. Carefully research each lender's loan options, terms, and rates before moving forward. 

Down payment requirements will vary depending on the loan type but can also vary from lender to lender. Even with a seemingly similar loan, the down payment requirements can differ vastly. Carefully even with a similar loan review all the details to ensure that you compare loans accurately. 

For example, one loan may offer a lower down payment, but the interest rate will be higher. Depending on the particulars of your financial situation, you can choose a set of terms that will help you best meet your financial goals. 

Interest rates for your investment property loan will vary from lender to lender. Remember that it’s not enough to compare interest rates outright. You also need to carefully consider the terms of each loan to ensure that you are comparing loans apples to apples. With so much information, it can be overwhelming. Take your time to evaluate each lender, loan, and terms carefully. 

When choosing a lender for your investment property loan, you may also need to assess the lenders based on the minimum and maximum funding limits. These limits indicate the minimum or maximum amount of money the lender will offer to loan you if you qualify. Funding limits will be critical if you want to purchase a real estate investment in a higher-priced market.

Complexity of the lender’s underwriting process 

Finally, you should evaluate the underwriting process of each lender for its difficulty and complexity. If you have a shorter timeline for your real estate investment purchase, it may be advantageous to work with a lender who can expedite the process. If you plan to purchase an investment property in a competitive market, it may be helpful to have a lender with a smooth, efficient underwriting process. Sometimes, the more quickly you can close, the more competitive your offer will be. 

Discuss the underwriting process with your lender and your real estate agent for an ideal outcome. In some cases, there may be aspects of the underwriting process that you can begin before identifying a property. 

After you’ve found a lender for your investment property, consider Belong

Your real estate agent and lender are critical professionals who will aid you in purchasing an investment property. Once you’ve purchased and financed your investment property, you can consider what other professionals will best support your new investment. 

Belong offers you an opportunity to increase the return and limit hassles related to your new investment property. We help you price your rental home for maximum cash flow and can guarantee rental payments. When the time comes to find tenants, we attract, screen, and retain residents who will value your new property as much as you do. Finally, we assist with any maintenance or repairs that you might need. 

If you have a new investment property or want to do the maths before you commit, check out our back-of-the-napkin calculator to do some quick sums on how Belong can support your real estate investment strategy. 

Enjoy Guaranteed Rental Income

Before opening up your rental to multiple renters, here are some important considerations.

Renting Your Single-Family Home to Multiple Residents

While renting a single-family home to multiple residents can increase your rental income, there are several legal considerations, downsides, and additional costs that you should consider. 

How does renting your single-family home to multiple residents work?

When renting a single-family home to multiple residents, each resident has their own private space, and they share access to common areas like the kitchen, bathrooms, and living spaces. When you rent a single-family home to multiple residents, you reduce the costs of rent for each individual resident. Where a single person may not be able to afford a rental home that costs $2,400 each month, they may be able to rent a room in the house for $600/month. Residents may choose to share additional expenses like wifi, and the utilities may be split equally or proportionally between residents. 

Remember that renting a single-family home to multiple residents differs from subletting a property. When you sublet a property, you rent a place you do not own while still being responsible for the rent to the landlord.

How “house-hacking” is related to renting a single-family home to multiple residents

The term “house hacking” refers to renting out a portion of your primary residence to pay the mortgage on a property. It can also refer to purchasing a multi-family property, living in one of the units onsite while renting the other unit(s) to a secondary party. It can also relate to renting out a guest house on your property. If you plan on renting your primary residence to another resident, you may want to consider many of these same benefits and challenges as renting a single family home to multiple residents.  

Legal considerations of renting to multiple residents

While there are clear benefits to renting your single-family home to more than one resident, there are several legal considerations you need to familiarize yourself with before moving forward. You may need special permission to rent a single-family home to multiple residents. You may also need to change the zoning of your rental property from single-family to multi-family to rent your property to several residents. Further, your HOA may prohibit or limit how you can rent homes in the community. In some cities and counties, you will need a special license or permit to rent your single-family home to multiple residents. In other locations, you may need to have your property inspected before renting it to multiple people.

You may be at more risk if you don’t navigate the legal implications of renting your single-family home to multiple residents. Imagine what might happen if a neighbor complains to the HOA and you are not renting the property in a way that is consistent with their regulations. Similarly, consider what might happen if you evict a resident and they file a lawsuit. These types of situations can have significant implications, including financial consequences. 

Finally, as with renting any property, you’ll need to familiarize yourself with Fair Housing Laws to avoid any inadvertent violations. 

Lease agreement for renting your single-family home to multiple residents 

If your residents don’t know one another, they are unlikely to sign a single lease together. In this case, you will need each resident to sign a co-tenancy agreement that includes additional guidelines around their individual financial obligations. It’s also helpful to ensure that the lease agreement contains guidelines for pets and visitors. You may also want to consider adding policies around shared space usage. These policies may prevent potential conflicts. A peaceful, cooperative living environment will help retain residents for extended periods. 

Benefits of renting your single-family home to multiple residents 

If you can control your costs and expenses, renting your multi-family home to multiple residents can increase your rental income. Renting your single family home to more than one residents might be right for you if cash flow and increased rental income is your primary motivation. In that case, you should still carefully calculate any expenses, including the annual costs of maintenance. Your potential rental income will also depend on your location, the size of your rental property, and the number of people you plan on renting the home to. Consider researching rental pricing factors in your area as you determine how much rent to charge.

Renting to multiple residents reduces vacancies

If you rent your single-family home to multiple residents, you may also find that vacancies have less impact on your cash flow. When renting your single-family home to multiple residents, your rental income is split between several residents. If you have a vacancy, you may only lose 25% or 30% of your rental income rather than 100%. When you reduce vacancies, you can maintain a positive cash flow or limit the effect of a cash flow reduction. 

Downsides of renting your single-family home to multiple residents 

While you may be able to avoid 100% vacancies for your single-family home, you may find that you have more vacancies overall. You may find that most people will only rent a room in a single-family home as a temporary arrangement. As such, they may be more likely to stay for only a limited period. When they can rent a home on their own, they likely will. Similarly, their circumstances may be more likely to change. As a result, you may need to list your rental property and screen residents more frequently. 

You’ll need to manage several residents

If you rent your property to more than one resident, you will likely spend more time and energy managing your rental property. Adding additional residents can significantly increase your work if you self-manage your rental property. You will need to collect rent for each resident and create and manage multiple lease agreements. You will also need to establish guidelines for the property unique to cohabitating residents. 

In some states, you cannot charge tenants separately for utilities unless the usage is accurately and individually metered. You’ll need to account for the cost of utilities when you price each room in the multi-family home. Unfortunately, you won’t know exactly how much electricity or water all the residents will use, and any additional costs will be an added expense. Charging a flat rate for utilities will not incentivize residents to conserve water or energy because they know they will not pay those expenses directly. 

Damages, disputes, and potential evictions  

When you rent a home to multiple residents, you will likely receive more complaints from the individuals in your single-family home. Communal living can be very challenging. You may find yourself moderating disputes or needing to regulate or set norms around residents' behavior. If there’s not a strong culture of caring for the rental property, you will likely experience more frequent damages. As a result, the property will also need more regular maintenance. A high resident turnover rate can quickly increase your costs if things need to be replaced with each new resident.

Skip the hassles of renting to multiple residents and consider a strategy that prioritizes positive cash flow 

At Belong, we help you find residents who appreciate your single-family home as much as you do. Our unique proprietary algorithm tells you exactly how much to charge for rent. We use real-time data, expertise, and insights about your unique home to price your rental property so you can maximize the value of your real estate investment.  

Belong markets and show your property to potential residents. When we find a resident who loves your home, we conduct a credit, identity, and criminal background check and personally interview each potential resident. Best of all, we offer Guaranteed Rent, which means you’ll always get paid.

Learn more and see if your single-family home qualifies. 

Is renting a single-family home to multiple residents a good idea? Before opening up your rental to multiple renters, here are some important considerations.

Discover the best places to invest in Washington real estate with our picks for the most walkable neighborhoods in Seattle

Most Walkable Neighborhoods in Seattle

Seattle offers a mix of homes, townhouses, and condos in distinctive, engaging, and walkable neighborhoods. The city offers residents the opportunity to join vibrant communities and a thriving job market. While each area offers unique benefits, you can find hip coffee shops, restaurants, and bars throughout Seattle. These Seattle neighborhoods have plenty of parks, water, and outdoor activities to enjoy. If you’re looking for good places to invest in real estate, explore our picks for the most walkable neighborhoods in Seattle. 

The Queen Anne neighborhood is one of Seattle's most widely recognized areas. This neighborhood is home to the iconic Space Needle and features some of the most spectacular views in the city. The Space Needle is part of the Seattle Center, which also includes the Pacific Science Center, Chihuly Garden & Glass, and the Museum of Pop Culture. 

The western border of Queen Anne meets Lake Union, which is popular for several watersports and boating. This area can be split into Upper and Lower Queen Anne, both known for their many hills. The northern part of Queen Anne features historic bungalows and craftsman-style homes. The southern part of Queen Anne is more of an urban center. 

If exploring the neighborhood doesn’t offer enough walking opportunities, there are several trails in the community. Once you’ve grown tired of exploring Queen Anne, consider hopping on the monorail, which will take you to downtown Seattle. 

Fremont is a one-of-a-kind neighborhood located northeast of Queen Anne. Step out in Fremont and experience everything quintessential about Seattle, including quirky shops, decadent dining opportunities, and entertaining attractions. The Fremont neighborhood is home to both Adobe and Google offices. The Brewery District allows residents to stroll from one brewery to another--be sure you stop off at Fremont Brewing. 

The Fremont Sunday Market, which runs year-round, allows you to purchase locally made and grown goods in your community. Opportunities to explore the outdoors are plentiful in Fremont. Explore the Fremont Trail, Gas Works Parks, the Burke-Gilman Trail, or Golden Gardens Park. 

Pioneer Square is one of the most historically significant neighborhoods in Seattle. A tour through the neighborhood known as the birthplace of Seattle features cobblestone streets and red-brick buildings. Stop off at the city’s oldest bar, Central Saloon, which welcomes patrons into a little slice of Seattle's history. Pioneer Square’s First Thursday Art Walk offers residents the chance to meander through the neighborhood and soak up the vibrant arts scene. 

Pioneer Square was originally one to two stories below the current neighborhood. After the Great Seattle Fire in 1889, the streets were raised to their present elevation, leaving parts of the original city below. Bill Speidel’s Underground Tour allows you to walk some of Pioneer Square’s original streets.  

The Chinatown International District or C-ID neighborhood is the vibrant epicenter of Asian-American Seattle. This multi-ethnic community stretches from 4th Avenue to Rainer and is bordered by Pioneer Square and SoDo. C-ID consists of three smaller districts: Chinatown, Japantown, and Little Saigon. The Chinatown International District hosts some of the most loved Seattle festivals, including the Annual Night Market, Moon Festival, and Lunar New Year Festival. 

The neighborhood is a short walk from both T-Mobile Park and Lumen Field. Long-standing businesses offer residents and visitors everything they need within walking distance. C-ID is also home to the Seattle Pinball and Wing Luke Museums. 

Belltown is beautifully located on the waterfront and conveniently close to Downtown Seattle. The beloved neighborhood is consistently ranked as one of the most walkable areas of Seattle and boasts an extensive music and arts scene. Most real estate along the waterfront comes in the form of high-rises with apartments and condos and is one of the more densely populated areas of the city.

Belltown is known for both Olympic Sculpture Park and Myrtle Edwards Park. Residents and visitors can also explore the Elliot Bay Trail. The neighborhood is also home to many bars, restaurants, and coffee shops. The community is named for an Illinois farmer, William Nathaniel Bell, who moved west in 1851. Stroll along Virginia or Olive Street, both named for William Bell’s daughters,

South Lake Union is home to one of the most iconic destinations in Seattle, Pike Place Market, but it has infinitely more to offer both residents and visitors alike. Located on the southern tip of Lake Union, this popular neighborhood is sometimes called SLU. 

South Lake Union’s proximity to the water makes it ideal for paddle boarding, kayaking, and boating. SLU is also Seattle's tech center-- Amazon, Facebook, and Google all call South Lake Union home. The neighborhood was once a highly industrial area but has been transformed into a destination for drinking, outdoor activities, and culture. You’ll also find the only downtown Whole Food, a welcome amenity for any resident. 

Ballard, once its own independent city, is located in the northwestern part of Seattle. The neighborhood’s Scandinavian history colors much of the current culture. Visitors can explore the National Nordic Museum and the Ballard Locks, which connect Union Lake and the Puget Sound. 

Real estate Ballad includes something at every price point and is not nearly as expensive as neighborhoods like Queen Anne. You’ll find Craftsman, Tudor, and rambler-style homes in addition to newly-constructed condos and luxury apartments. Almost anyone would enjoy living in this walkable community thanks to its enchanting culture, many amenities, and location. 

It’s hard to find someone who doesn’t enjoy the long-standing cultural charm of Capitol Hill. This Seattle neighborhood has become the epicenter of the city’s LGBTQ+ community. Some might remember that the neighborhood was closely associated with the 90s grunge scene. In Capitol Hill, you’ll find a mix of apartment complexes and large houses along 44th Ave, also called Millionaire’s Row. 

Capitol Hill is easily the most progressive, creative, and popular area in Seattle, with extensive dining and nightlife opportunities. Don’t miss the chance to stroll through the 44 acres of Volunteer Park. Just be sure to stop and admire the breathtaking glass, Victorian-style conservatory. With so much to offer, Capitol Hill rental properties are in high demand. 

Discover why Seattle homeowners love Belong 

Once you’ve found the perfect property in Seattle, Belong can help you find residents who love your home as much as you do. We take the guesswork out of pricing by combining current market data with live, real-time demand from the local rental market. That data allows you to maximize rental income and attract the best residents. You’ll experience fewer vacancies, residents who care for your home, and profitable rental income. 

Discover the best places to invest in Washington real estate with our picks for the most walkable neighborhoods in Seattle - popular with tenants and residents

Is Seattle a good place to invest in real estate in 2022? Here are the market conditions and opportunities to consider before investing in Seattle real estate.

Is Seattle a Good Place to Invest in Real Estate in 2022?

While Seattle homes continue to rise in price, there are signs that the real estate market is cooling. These factors and Seattle’s lasting desirability indicate that Seattle real estate remains an excellent opportunity. 

If you plan on investing in Seattle real estate, you can ensure that you make the best investment possible by choosing the right property and carefully calculating cash flow and ROI. A team of professionals can help you to manage your investment property and maximize your potential profits. 

Before you evaluate Seattle as a potential location to invest in real estate, it's helpful to understand what changes the real estate market is currently experiencing. These shifts will inevitably affect the real estate market in Seattle. 

The recent rise in interest rates significantly impacts the real estate market and how investors should approach a potential purchase. As of summer 2022, the average mortgage interest rate for a 30-year, fixed-rate mortgage was 5.25%. Interest rates for other financing options for real estate investments are also increasing. Overall, an increase in interest rates will make it more expensive to purchase real estate. 

How interest rates are affecting housing markets, including Seattle 

With higher interest rates, buying a home in Seattle becomes more expensive. The rise in interest rates is designed to slow the housing market by increasing the cost of purchasing real estate and reducing demand. The speed and intensity at which the market will slow vary based on other local factors. 

While increased interest rates can make investing in real estate more expensive, it does not automatically mean that Seattle real estate is a poor investment. Interest rates are still historically low, and real estate investing allows you to capitalize on an increasingly appreciating asset. 

Although the overall housing market may be experiencing a moderate slow down, local communities may experience a cooling housing market differently. Hyper-competitive markets are less likely to see a real estate market cool down. In moderately competitive markets, you can expect that the real estate market may begin to slow slightly. 

Although we expect to see rents continue to rise across the country, 2022 rental rates have not risen as quickly as they did in 2021. As a result, we may see the housing market begin to normalize. 

The overall increase in rental prices is likely the result of a supply-demand mismatch and pandemic-related delays in building new homes. For some communities, stabilizing rental rates may discourage renters from exploring home purchases. However, long-term renters may see a cooling housing market as an opportunity to purchase a home. 

As the real estate market slows, homeowners are less likely to list their homes, and fewer homes are listed for sale. In a cooler real estate market, sellers have less incentive to sell their homes. Home prices and interest rates are currently high enough to cause sellers to carefully evaluate any potential motivation to sell their homes. For many homeowners, it doesn’t make sense to move unless circumstances require it. 

While the shifts we’re seeing in the national housing market are sure to affect Seattle, each city will have factors that uniquely affect the local housing market. 

The National Association of Realtors reports that Seattle's “home prices rose by 19.6%” and that the “monthly mortgage payment is higher by $603.” This increase is significant but consistent with what you expect in a highly competitive and desirable market. Median home prices in Seattle continue to rise. According to Realtor.com, “the median listing home price in King County, WA was $899K, and the median home sold price was $905K.”

Despite the increase in home prices, there is some evidence that the market in Seattle may be slowing, albeit slowly. The Seattle Times reports that there were fewer new listings, more listings left on the market at the end of the month, and fewer pending home sales in April 2022 than in the year before. 

Read More: How to Find the Sweet Spot of Rental Pricing For Your Seattle Home

How to evaluate real estate investment opportunities 

Regardless of where you choose to invest in real estate, you should carefully evaluate your investments. Investing in real estate is likely one of the largest single purchases made during your lifetime. Ultimately, the best time to invest in real estate is unique to your financial circumstances. Generally, investing makes good sense when you have long-term financial stability.

Before you begin your search for a real estate agent or lender, you should clearly define your budget. As you search for potential real estate investment properties, filter listings based on the parameters of your budget. You should prepare to pay more than the list price and target properties accordingly.  

Carefully calculate the potential cash flow and ROI of a real estate investment property in Seattle 

As you identify potential properties, carefully calculate the cash flow for each by subtracting potential expenses from the potential income a property can generate. You’ll need a firm grasp of Seattle rental pricing to calculate cash flow accurately. You can also calculate the possible ROI of a specific property by dividing the annual return by planned expenses (including the down payment, closing costs, and any home improvements).

Consider locations outside of the most popular counties in Seattle 

If potential real estate investment properties in Seattle give you sticker shock, you can also consider growing neighborhoods or smaller suburbs just outside the city. These areas can offer more varied opportunities. As Seattle grows, renters will look for opportunities outside the city center. 

Ultimately, investing in Seattle real estate can offer significant opportunities

The Seattle job market continues to grow, and the city offers residents an almost incomparable quality of life. Seattle's proximity to the outdoors will continue to attract residents from all over the country. Further, the amount of renters in Seattle continues to grow, providing real estate investors with growth opportunities. Since the 2020 census, renters in Seattle outnumber owner-occupied residents. As long as you market and manage your rental properties appropriately, you can expect an ROI from investing in Seattle real estate. 

Learn how Belong can help you maximize the cash flow of your Seattle real estate investment property 

Belong offers homeowners an alternative to property management that positively impacts rental property cash flows. We help you maintain a positive cash flow for your real estate investment by maximizing the rental price, regularly inspecting the property, conducting regular preventive maintenance, and limiting vacancy and resident turnover. With Belong, there are no hidden fees. We offer rent guarantees and 24/7 concierge-level support. 

Learn more about Belong and see the role it plays in your real estate investment strategy.

Jordan Newsom

Jordan Newsom is a highly-caffeinated writer who loves delighting readers, using content to teach, and broadening perspectives. When she's not behind a computer screen, she's hunting down the best coffee shops, breweries, and restaurant patios in Denver, Colorado.

Belong

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Belong

Ale Resnik

Jane Allison Gunn

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Tamara Epelbaum