Real estate investors holding their properties as income producing assets are mostly concerned with the cash flow of the property, i.e. how much money is left from the tenant rental payment after the PITI and operating expenses. Since the investor property loans come with much higher interest rates, investors try to minimize the rate with higher downpayment, which comes from either the borrower’s savings or from 1031 deferred tax exchange. Depending on the stage of the investors career (early investor, mostly interested in short-term buy-hold-1031 schemes, or late stage investor with substantial equity in the rental properties interested in hassle-free passive income) the loan choices will vary too. Early investors normally opt for short-term ARMs with Interest Only options that allow for a greater cash flow with lower downpayment, whereas the late stage investors try to pay off their fixed rate mortgages as quickly as possible so they can enjoy the greater cash flow from the rental properties.
BEST LOAN CHOICES:
6-months to 3-year Hybrid ARM loans, including Interest Only, negAm or "Cash Flow" option ARMs
for short-term investors, fixed rate loans for long-term investors. Use prepayment wisely: if you are not
going to refi or sell the house in two-three years, take an appropriate hard prepay option to lower your
interest and payments.