Investment Property Financing

Buy it because the numbers work, not because you like the house

I want to buy a rental is not the plan. That is the beginning of the conversation. What are you actually trying to accomplish?

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What is different about financing a property you will not live in?

The property is being looked at as an investment instead of as your home.

So the financing, the documentation and the way the whole transaction gets reviewed can be different. There may be different expectations around things like assets, reserves, and how rental income is considered.

It is not necessarily harder. It is a different type of transaction. And the first question is still why. Are you trying to create income? Build something long term? Buy one property, or build toward a portfolio? Because the answer changes what a good decision even looks like.

What does the property produce before the financing?

Rent is not what the property makes. What it makes is rent minus everything that happens to a building with somebody living in it. This stops before the mortgage, because what is left here is the figure that has to cover it. Enter your own figures, nothing is sent anywhere.

Expected rent, per month What you expect it to actually let for, not the highest you have seen nearby.

Every month, whoever is in it

These carry on when the property is empty.

Property taxes, monthly In Michigan the taxable value can reset after a sale, so the seller's bill is not yours.

Insurance, monthly A rented property is not insured the same way a home is.

Management, monthly

I would manage it myself

Set aside for repairs and maintenance, monthly Things break. This is the line people leave out.

I have not allowed for this

How much of the year do you expect it to sit empty? Between tenants, and while it is being turned around.

This is arithmetic on numbers you entered. It is not a quote, an offer, a credit decision or a recommendation, and it does not evaluate your eligibility for any loan program. How much of expected rent is income a loan can actually use is decided by the program and a full review, not by this. Align Lending LLC, NMLS #2041154. Equal Housing Opportunity.

What you will walk away knowing

Whether this specific property works, and whether the plan around it has any room in it.

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What does it mean for the property to work?

It means looking at more than what the rent is and what the mortgage might be.

People walk in and start thinking like a homeowner. I love this kitchen. I love this neighborhood. Fine. But does the property actually work as an investment? Those are not always the same question.

Talk it through

The most common first-time mistake is falling in love with the house, which is funny because you are not living there.

The part people skip

Reserves: the money to buy versus the money to own

People think about what it takes to buy the property and forget about what it takes to own it. That is a huge difference.

What happens when the furnace goes? What happens if the property sits empty? What happens when there is a repair nobody expected?

Even setting aside whatever a particular loan program requires, we do not love seeing somebody buy an investment property and have nothing left afterward. It is a business. Businesses need breathing room.

When we tell somebody a deal does not work

When the entire plan only works if everything goes perfectly.

The rent has to be perfect. Nothing can break. The property can never sit empty. Every assumption has to go their way. That makes us nervous. There should be a little room in the plan for real life to happen.

The people who do this well are less emotional about the property. They are patient. They look at the numbers, they ask questions, and they understand that not buying something can be a good decision. The ones who struggle sometimes decide they want a property first and then start trying to make the numbers prove them right. That is backwards.

Get a straight read

What this looks like in practice

The math that only works when nothing goes wrong

The mistake we see with newer investors is finding a house and immediately doing really simple math. The rent is this. The mortgage is this. So I am making the difference.
Slow down, because that is not the whole property. You still have taxes. Insurance. Maintenance. Repairs. Potential vacancy. Maybe management. And on the mortgage side, the income you expect the property to produce is not automatically the exact income the loan can use. Those are two separate conversations.
That is where somebody can talk themselves into a property, by using the best possible version of every number. Perfect rent. Nothing breaks. Nobody moves out. Taxes exactly as expected. Everything goes right.
We do not love a deal that only works when nothing goes wrong. What matters is whether the property still makes sense when you look at it like a business instead of a house you happen to like. You are not buying your kitchen. You are buying the numbers.

Talk through your own situation

Samantha Shelton in the Align Lending office

About Samantha

Samantha Shelton has been a licensed loan officer since May 2020 and founded Align Lending in August 2020. Before mortgages she was a stay-at-home mom raising three boys.

In her own words: "I own a mortgage brokerage in Michigan and I help people understand their options before they make one of the biggest financial decisions they are ever going to make."

Recognition includes Hall of AIME, NAMB Broker of the Year, and Woman with Vision, along with her leadership work with AIME.

Align Lending LLC, NMLS #2041154. Samantha Shelton, NMLS 1647301. Licensed in Michigan, Ohio, North Carolina, Florida, Louisiana and Texas.

Read Samantha's story

Very professional and knowledgeable, highly recommend for your lending needs!

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Individual experience. Results vary.

Questions people actually ask

If yours is not here, ask it on the call. There are no dumb questions.

What happens if the property is vacant or something breaks?

That is exactly why reserves matter. A plan that only works when the furnace never goes and nobody ever moves out is not a plan, it is a best case. There should be room in it for real life.

How does a lender look at the rental income?

It depends on the transaction and the loan program, and that is genuinely not a question with one generic answer. There are guidelines around what income can be considered and what documentation supports it. The thing to know going in is that you cannot automatically treat every dollar of expected rent as income the loan can actually use.

What should I have in front of me before I call?

If you already found a property, bring the property. What do you think it could rent for? What expenses do you know about? Then the same financial information any financing conversation involves. But do not wait until you have built a giant spreadsheet. If you are only thinking about it, we can start there.

What changes once I own more than one?

More moving parts. More loans, taxes, insurance, income, expenses and documentation, and more things that can break on a Tuesday. At some point you stop thinking about one rental and start thinking about the portfolio.

Is there anything specific about investing in Michigan?

Property taxes matter again, and we do not want somebody looking at what the current owner pays and building the investment around that number. Michigan is also very local. Different cities and townships can have different rules and different rental markets, so it comes back to the actual property and location.

What separates people who do this well?

They are patient, they are less emotional about the property, and they treat not buying as a legitimate outcome. That last one matters more than anything else on this list.

Not buying something can be a good decision

The people who do this well are patient. They look at the numbers, they ask questions, and they treat not buying as a legitimate outcome.