What Texas Real Estate Investors Should Know About Texas Investment Property Loans
Despite challenges in the real estate market in 2023, Texas continues to be one of the strong places in the United States to invest in real estate. It offers beautiful scenery, warm weather, an appealing cost of living, and more. As 2024 unfolds, Texas real estate investing maintains promising opportunities for investors seeking stability and growth.
Let’s discuss opportunities in the Texas real estate market for investors and the Defy Mortgage programs for Texas investment property loans that help those wanting to jump into the market.
What is an Investment Property Loan?
Investment property loans are a specialized type of mortgage designed for real estate investors looking to purchase properties they don’t intend to live in. These loans are used to finance residential or commercial properties that will generate income through rental or eventual resale.
Unlike primary residence mortgages, investment property loans typically can come with stricter qualification requirements, higher interest rates, and larger down payments. This is because lenders view these loans as higher risk, given that investors may be more likely to default if the property doesn’t perform as expected financially. However, requirements vary by lender so that’s not always the case.
Options For Texas Investment Property Loans
There are multiple loan programs available for Texas real estate investing. Borrowers should research and speak to professionals to determine which loan program is best suited for them as Texas investment property loan specifics vary between lenders.
- Conforming Loans: Conforming loans, or QM loans, are basic loans which conform to Fannie Mae and Freddie Mac standards. Although these loans have stricter requirements, they also offer competitive interest rates.
- Jumbo Loans: Jumbo loans are for high-priced properties exceeding conforming limits, common in luxury markets. They require excellent credit, significant assets, and larger down payments, often with higher interest rates.
- FHA Loans and VA Loans: Government-backed loans (such as VA loans and FHA loans) allow for multi-unit properties if the borrower occupies one unit. They offer lower down payments but have specific occupancy requirements, making them less suitable for all investment strategies.
- Non-Conforming Loans: Non-conforming loans, or non-QM loans, include bank statement loans, asset-based loans, and more. These loans do not require traditional qualification parameters.
Types of Texas Investment Property Loans
- Residential Investment Property Loans: Specifically designed for single-family homes, condos, townhomes, and other residential properties that investors intend to rent out. These loan options tend to be similar to traditional residential loans.
- Commercial Investment Property Loans: Include buildings such as offices, retail spaces, and warehouses. These properties are used with the intention of conducting business. Commercial loans can cater to many property purposes. Profit potential and investor history are considerable factors for commercial loans.
- Land Investment Property Loans: Pertinent to raw land or land development. Many lenders want to see a solid development plan for the land.
Who Would Be a Good Candidate for Texas Investment Property Loans?
- Real estate investors (seasoned and novice)
- Individuals looking to purchase a short-term rental property
- Property developers
- Landlords
- Foreign nationals looking to invest in US property
- First-time homebuyers looking to buy an investment property
- Self-employed individuals looking to purchase an investment property
Options for Non-QM Texas Investment Property Loans
Texas offers specialized investment property loan programs tailored to various types of investors, including the self-employed, contractors, real estate professionals, and entrepreneurs. For these Texas property investors, non-conforming or non-QM loans can be particularly advantageous. Here are some notable non-QM programs:
- DSCR Loans: These loans evaluate eligibility based on the property’s Debt Service Coverage Ratio. They’re particularly well-suited for investment properties generating rental income.
- Bank Statement Loans: Instead of traditional documentation like tax returns or W2s, these loans use bank statements to assess qualification. They’re ideal for those with non-traditional or fluctuating income streams.
- Fix-and-Flip Loans and Construction Loans: These programs primarily consider an investor’s track record in real estate. They cater to those looking to renovate properties for resale or build new structures from the ground up.
- Foreign National Loans: Designed for non-U.S. citizens and expatriates, these loans don’t require a FICO score or Social Security number. They’re an excellent option for international investors seeking to purchase U.S. property.
- Profit & Loss (P&L) Loans: These mortgages rely on business profit and loss statements for eligibility assessment. Applicants must meet minimum requirements for self-employment duration and business establishment.
- Interest-Only Loans: These mortgages offer lower initial payments by allowing borrowers to pay only interest for a set period, typically 5-10 years. They’re beneficial for those seeking payment flexibility or expecting future income growth.
Requirements for Texas Investment Property Loans
Don’t forget that parameters Texas investment property loans are different for every lender. At Defy Mortgage, the following criteria are necessary for our investment property loans:
- 620+ FICO score
- 85% maximum LTV (resulting in a lower down payment)
- No maximum loan amount
- 0.75 Minimum DSCR ratio
- 3 months cash reserve
- Foreign nationals allowed
- Interest-only option available
- No income documents or tax returns required
- 620+ FICO score
- 90% maximum LTV
- $6MM maximum loan amount
- 12-24 months of bank statements (personal and business accepted)
- Interest-only option available
- 620+ FICO score
- 90% maximum LTC
- 70% maximum ARV (as completed value)
- Available for 1-4 unit investment properties
- Fixed interest rates with interest-only during construction phase
- 620+ FICO score
- 85% maximum LTC
- 70% maximum ARV (as completed value)
- $10MM maximum loan amount
- Available for ground-up construction, fix-and-hold, and fix-and-flip, up to 4-unit properties
- Good credit report/history from the U.S. or their home country. An International Credit Report may be necessary depending on the borrower’s U.S. credit history.
- Necessary documentation needed for pre-approval
- Ability to pay down payment (usually between 20% and 30% of the property purchase price)
- Verifiable income with consistent work history: includes two years of job history or income statements
- Liquid cash reserves to cover closing costs and mortgage payments.
Profit and Loss Loans (P&L Loans):
- 600+ FICO score
- 90% maximum LTV
- $6MM maximum loan amount
- Borrowers must be self-employed for two (2) years and business must have existed for two (2) years
- CPA-prepared and signed profit and loss statement (P&L statement)
- 30-year fixed, adjustable, interest-only options
- 620+ FICO score
- 85% maximum LTV
- $10MM maximum loan amount
- 15% down payment, but no requirement for a principal paydown
How Texas Property Investors Make Money from Investment Properties
Investing in Texas real estate can be highly profitable with the right approach. Investors can generate returns from their Texas properties through four main strategies: earning rental income, benefiting from property appreciation, engaging in fix-and-flip projects, and engaging in the short-term rental market.
Rental Income
Rental income is the primary source of revenue for landlords. When you own an investment property, you collect rent from tenants. The goal is to ensure that investors’ rental income exceeds their operating expenses (such as mortgage payments, property taxes, insurance, and maintenance costs). Positive monthly cash flow provides steady income. Rental income offers stability, especially when investors have reliable tenants. It allows them to build wealth gradually over time.
Appreciation
Over the long term, real estate tends to appreciate in value. As the market improves and demand increases, your investment property’s worth can rise significantly. Texas, with its strong economy and population growth, offers promising appreciation potential. Plus, if you make strategic improvements (such as renovations or upgrades), you can force appreciation. Fixing up a property can increase its value beyond market trends.
Fix and Flip
Fix-and-flip involves buying distressed properties, renovating them, and selling them quickly for a profit. While it requires active management, successful flips can yield substantial returns.
Short-Term Rentals (VRBO and Airbnb)
Temporary lodging options, often referred to as short-term rentals, involve properties rented out for brief periods, spanning from overnight stays to several months. Popular platforms like Airbnb and VRBO facilitate these transactions. This rental model offers Texas real estate investors significant versatility, allowing them to monetize their real estate when it’s not in personal use, potentially creating a lucrative income stream.
Why is Texas Real Estate Investing Profitable?
The Lone Star State has a lot to offer for Texas real estate investors, particularly in terms of economic and population projections. These positive trends mean that demand will increase, benefiting Texas real estate investors.
Economic Resilience
Texas boasts a robust and diverse economy, even during economic downturns. Flourishing industries like technology, energy, and healthcare drive job creation and population growth, fueling demand for housing and commercial real estate. Cities like Houston, Dallas, San Antonio, and Austin stand out as investment hotspots.
Population Boom and Migrant Trends
Over the past decade, Texas has seen a substantial influx of residents from across the country. Factors like a flourishing job market, lower cost of living, and a favorable business environment attract newcomers. Houston, San Antonio, Dallas, Austin, and Fort Worth are among the nation’s top 15 largest cities in terms of population.
Affordability and Diverse Offerings
Texas offers relatively affordable housing options compared to other major metropolitan areas. Whether you’re a first-time homebuyer or an investor, there’s something for everyone. Investors can explore single-family homes, multi-family properties, townhouses, and commercial real estate across different price points.
Business-Friendly Environment
Texas is renowned for its business-friendly policies, minimal regulatory burden, and favorable
tax structures. These factors incentivize entrepreneurship and investment, contributing to the state’s economic prosperity.
Pros and Cons of Investment Property Loans
Real estate investment financing provides opportunities for property acquisition, but it’s crucial to weigh the pros and cons before committing. By carefully considering the benefits and drawbacks, prospective investors can make well-informed decisions about Texas real estate investments that align with their financial objectives and risk comfort level.
Pros of Texas Investment Property Loans:
- Investment property loans allow Texas real estate investors to leverage their capital by borrowing funds to purchase real estate. This enables you to control a valuable asset without tying up all your own money.
- Owning investment properties diversifies investors’ portfolios beyond traditional stocks and bonds.
- Real estate can provide stable cash flow and potential appreciation over time.
- Interest payments on investment property loans are often tax-deductible. Additionally, depreciation and other deductions can reduce your taxable income.
- Real estate values can appreciate, leading to long-term wealth accumulation.
Cons of Texas Investment Property Loans:
- Investors are responsible for maintenance, tenant issues, and property upkeep.
- Investment property loans typically have higher interest rates compared to primary residence mortgages.
- Lenders perceive investment property loans as riskier due to potential rental income fluctuations. This can lead to higher interest rates and other stricter loan terms.
- Real estate markets can be volatile; while Texas has shown resilience, local factors can impact property values.
Real Estate Market Trends for Texas Property Investors
As the market improves, property values are expected to rise. Informed insights from economic research teams highlight the impact of Texas real estate decisions, from local buyers to global firms. This special forecast report provides valuable perspectives. Despite high inflation rates, the Texas economy remains resilient. Employment growth, particularly in education and health services, contributes to stability. Employment and earnings growth are showing signs of flattening, impacting local housing sales. While sales remain down from last year, home prices remain elevated.
Texas MLS data reveals robust housing activity across the state, with new listings growing steadily. The total active listings count recently reached its highest level since July 2012. The Texas Home Price Index indicates positive price appreciation changes for residential single-family homes.
Year-over-year, inventory levels have increased significantly by 38.8%. Active listings are up 8.8% compared to last month. This shift suggests a potential cooling off from the extreme seller’s market conditions.
Median list and sales prices continue to show positive trends year-over-year (around 0.2% and 3.3%, respectively). However, the growth rate has slowed compared to previous months. This hints at potential stabilization after rapid appreciation.
Texas has seen robust demand for rental properties due to population growth, job opportunities, and migration from other states. Rental prices have been increasing steadily, driven by high demand and limited supply. Major cities like Austin, Dallas, and Houston have witnessed significant rent hikes. Real estate investors find Texas appealing due to its growing economy, favorable business climate, and potential for rental income. Plus, some renters are opting for suburban areas over urban centers, seeking more space and affordability.
The median time for a home to go under contract has risen (around 2.6% year-over-year). This aligns with the rise in inventory, indicating a more balanced market where buyers have more time to consider options. Listings with price drops have seen a substantial year-over-year increase of over 54%. Sellers may be adjusting their pricing strategies in response to market changes. For buyers, a more balanced market provides opportunities to explore options without the frenzy of bidding wars. Sellers should adjust pricing strategies based on the changing landscape.
Overall, Texas remains a promising market, but it’s finding a new equilibrium as trends evolve.
Top Cities for Texas Investment Property Loans
- Dallas: A hub for business and investment with a diverse economy, job growth, and a thriving real estate market.
- Austin: Booming tech industry, population growth, and vibrant lifestyle.
- Houston: Houston ranks #6 in the country for the hottest real estate market in 2024.
- San Antonio: Steady growth, affordability, and a strong rental market.
- Fort Worth: Different property types available due to a blend of culture and economic growth.
- El Paso: An emerging market with steady growth for those seeking affordable properties.
- Corpus Christi: Coastal living meets investment potential.
- Waco: Known for affordability and high-yield opportunities.
Texas Investment Property Lenders
We’ve compiled a list of the Top 10 Best Investment Property Lenders in 2024. Keep in mind that every lender might offer different programs, rates, and qualification criteria for Texas investment property loans. Texas property investors should always consider shopping around and comparing offers from multiple lenders to find the best match for their specific real estate investing needs and financial situation.
Here are a few:
1. Fairway Independent Mortgage
Fairway Independent Mortgage Corporation is a nationally ranked top 10 mortgage provider. They specialize in residential mortgage purchases, refinancing, conforming and non-conforming jumbo loans, home equity, and second mortgages.
Fairway stands out for its robust suite of loan products, including ITIN loans for borrowers without Social Security numbers, renovation loans, government-backed mortgages, and loans for self-employed borrowers. While they don’t post mortgage rates online, Fairway’s expertise shines through their ability to handle loans up to $9.5 million.
2. Kiavi
Kiavi provides timely capital and intelligence to real estate investors, unlocking value in aged U.S. homes. Their data-driven approach streamlines transactions, offering a simpler, more reliable way to access capital. Approximately 93% of Kiavi customer projects exit successfully, surpassing the industry average. Their technology platform empowers smarter decisions for fix-and-flip strategies.
3. United Wholesale Mortgage (UWM)
UWM set a three-year goal to become the No. 1 lender in the country. UWM focuses on the wholesale channel, working with loan brokers rather than directly with borrowers.
UWM plans to invest billions in technology, leveling the playing field with retail lenders. While UWM’s aggressive strategy puts pressure on competitors, their ample capital and technology advantage position them well.
4. Rocket Mortgage
Rocket Mortgage, part of Rocket Companies, is the nation’s largest and most innovative retail mortgage company. Rocket’s strategy includes diversification (e.g., home equity loans, partnerships with smaller banks) and local presence (loan officers working closely with real estate agents). They’re committed to affordability, inclusion, and sustainability in housing.
5. Defy Mortgage
Defy Mortgage is bringing some bold, innovative energy to the mortgage game for non-traditional borrowers. Their experienced team specializes in helping real estate investors build their empire and establish their legacy with tailored loan solutions customized to meet each investor’s unique needs. They break down barriers for both buying and refinancing, making the process smoother and more secure.
That cookie-cutter, one-size-fits-all approach? Not their style. Defy knows that access to the right mortgage can make or break a project. They’ve seen firsthand that the banks are rigid – many of Defy’s employees worked there for years. It’s why Defy was started – they are driven by a passion to challenge the status quo and create a new era of lending that puts the power in the hands of borrowers. Talk about setting new standards in the industry.
Defy’s CEO, Todd Orlando, is an experienced banker who isn’t afraid of defying the traditional in the financial services space. Recognizing that the number of self-employed individuals is at an all-time high, Defy offers 75+ creative loan programs to help non-traditional borrowers achieve their goals – and that includes DSCR, fix & flip loans, construction loans and more. And the best part? They close fast and make it easy.
Texas Investment Property Loans FAQs:
- What is an investment property loan?
An investment property loan is a financial instrument designed for acquiring properties intended to generate income. These loans can be used for residential, commercial, or undeveloped land purchases. Financing options encompass conforming, non-conforming, jumbo, and government-backed programs.
- Who are Texas investment property loans for?
Texas investment property loans cater to a diverse group, including real estate investors, property developers, and landlords managing both short and long-term rentals. They’re also suitable for foreign nationals and first-time buyers or self-employed individuals looking to enter the investment property market. The Texas real estate investment landscape welcomes participants from all backgrounds.
- What are the pros and cons of Texas investment property loans?
Investment properties can generate additional revenue streams. They often appreciate in value and offer portfolio diversification since real estate markets operate independently from stocks. Additionally, they can serve as a buffer against inflation. However, the real estate market carries inherent risks, and substantial capital gains taxes may apply. Certain investment properties may require significant time and financial commitments for upkeep and management.
- Are Texas investment property loans only Non-QM?
Texas investment property loans are not limited to Non-QM options. Both Qualified Mortgage (QM) and Non-Qualified Mortgage (Non-QM) loans are available, making real estate investing in Texas accessible to borrowers in various financial situations.
- How much does my down payment need to be for Texas investment property loans?
Down payment requirements for Texas investment property loans can be quite flexible, with some options offering low initial payments. However, the specific amount needed varies depending on the loan type and lending institution. We have a detailed blog post blog post addressing this topic.
- Where can I get an investment property loan in Texas?
There are many financial options for Texas investment property loans. These include Fairway Independent Mortgage, Kiavi, United Wholesale Mortgage, Rocket Mortgage, and Defy Mortgage. Borrowers should research lender details to determine which institution is the best for them.
- Why should I purchase an investment property in Texas?
The state is a great option for real estate investors. There is economic resilience and even more is predicted in the future. Plus, there is a population boom as migrants are immigrating. Texas also has a diverse real estate market. Finally, its business-friendly policies make it appealing for Texas real estate investors to maximize their profit.
- How do I make money from Texas real estate investing?
Investors typically profit through three four main strategies: short-term rentals (think Airbnb or VRBO), long-term rentals, property value appreciation, and renovating properties for resale (house flipping).
- Can Texas property investors refinance their investment properties?
Yes! Texas property investors have the option to refinance their investment properties, potentially allowing them to access better terms or rates.
- What are the requirements for Texas investment property loans?
The criteria for Texas investment property loans vary widely based on factors such as loan type, property characteristics, lender policies, and the borrower’s financial situation. It’s recommended that potential buyers consult with financial professionals to determine the most suitable loan program for their circumstances.
- What are the interest rates for Texas investment property loans?
Interest rates for Texas investment property loans fluctuate based on individual lender policies and market conditions. Generally, these rates tend to be slightly higher than those for conventional mortgages due to the increased risk perceived by lenders in investment property financing.
- Are Texas investment property loans limited to seasoned investors?
Not at all! Texas real estate investing is suitable for everyone from property investment experts to novices.
- Is Defy Mortgage licensed in Texas?
Yes, Defy Mortgage is licensed in Texas! Defy Mortgage provides both conventional and non-conventional investment property loan options in Texas, including programs based on bank statements, profit and loss reports, foreign national status, and debt service coverage ratio (DSCR). Defy Mortgage offers personalized solutions tailored to each borrower’s needs, aiming for optimal outcomes and superior service.
- Are Texas Investment Property Loans legal?
Yes, Texas investment property loans are legal.
