You have a lot of options when it comes to financing your investments, especially if you already have a portfolio with a few stable investment properties in it. Income properties can be financed against the value of their income instead of their resale value, and when this happens you have the option to take cash out of the deal as working capital. That’s why stated-income loans are popular with established investors.

Valuing Your Building’s Ability To Earn

These loans are still secured by the building, which means in the case of a default, there is still a risk of losing the property. Since they are based on the building’s ability to earn and the LTV averages 50-75% for these loans, a building with an established income and the right overhead can pay for the loan itself while you use the capital to acquire new properties or work out short-term deals for additional returns. This kind of loan makes more sense than one based on the resale value if you have no intention of marketing the property because it represents the building’s ability to generate wealth in real-time and not just a potential value under the right circumstances.

Cash-Out Financing To Control Risk

Investors often use stated-income loans to expand a portfolio because the risk to a stable, income-earning building is low when it can pay for the loan. Since the capital your receive has no stipulations on its use, you can use it to buy another property. This is a convenient way to pick up buildings that need renovation for cash, pay for the renovation, and then either market them to tenants or other investors. In the event you run into extra costs to improve the property, you can still finance the new acquisition to take care of business and get your new income stream stabilized.

When you’re selling the property onward, that big cash influx at the end can be used to wipe out the stated income loan early, too. There are no early payment penalties on these products.

Applying For a Stated Income Loan

You won’t need an appraisal to apply for this kind of loan, but you will need to prove that the building you want to use as collateral is consistently earning. The value of the loan is going to be limited by its income, so the best choice is to finance a consistently profitable property, like your oldest or highest-performing buildings.