How ARM Loans Can Benefit Investors in a Tough Market

arm loans for investment properties

It’s no secret that 2022 is a tough year in the real estate market. With high inflation and rising interest rates, good deals are harder to come by, and financing a long-term rental property is a lot more expensive than it was at the beginning of this year. For anyone looking to grow a strong portfolio in a year like this one, it’s important to think outside the box and find creative solutions to navigate a tough market. As a private lender, we recognize that this applies to financing as well – so as a way to get creative, we’ve begun offering adjustable rate mortgage loans for real estate investors.

What is an ARM Loan?

ARM stands for Adjustable Rate Mortgage – and like its name suggests, it is a mortgage loan in which the interest rate adjusts over time. All of these loans are structured as 30-year loans, but the interest rate can be locked in for an initial period of 5, 7, or 10 years, during which investors will be making interest-only payments. After the initial term of the loan, the rate will adjust each year with the market interest rate.

In some cases, adjustable rate mortgages can be tricky – if interest rates are currently low and you expect them to get higher, it doesn’t make sense to sign on for an adjustable rate. However, if rates are high and you expect them to get lower over time, an ARM can be extremely advantageous.

Why Now is a Great Time to Finance Using an ARM

Since the housing bubble burst in 2008, 30-year fixed rate mortgages have seen steadily decreasing interest rates, with record lows coming in the wake of the Covid pandemic in 2020 and 2021. It was known at the time that those low rates would not be sustainable for too long, but no one knew how high rates would jump once the Federal Reserve started taking action to control inflation brought on by stimulus efforts.

Currently, mortgage rates are somewhat stable, but it appears likely that they may continue to rise over the next year or two. Given that now is a time of high housing prices and high mortgage rates, investors seeking to hold rental properties for the long term would be wise to take advantage of adjustable rate mortgages now to lock in the lowest rates possible in this market. From there, investors can either refinance into a fixed rate mortgage when interest rates come back down, or simply enjoy the benefits of their interest rate decreasing on an ARM.

Time in the Market is Better than Timing the Market

There’s an old saying in investing that time in the market is more important than timing the market. Ultimately, it’s impossible to tell when peaks and valleys will occur, but investors can rest assured that their investments will bring positive returns in the long run. While some investors are sitting on the sidelines waiting for market conditions to improve, a lot of professional investors are taking advantage of a quieter market and continuing to build their portfolios through more creative means.

At Pimlico Capital, we’re here to help investors grow their businesses, and we will always take market conditions into account when entering into an agreement with an investor. We stand by our commitment to honesty and integrity, and we feel that it’s deeply important to build positive, long-term relationships with investors. In order to be the best lender, we have to offer the best solutions

What Do I Need to Qualify for an ARM Loan on an Investment Property?

For best chances of approval for an ARM loan, investors and subject properties should fit the following criteria:

  • Minimum 600 FICO score
  • Minimum loan size of $67,500
  • 1-4 units per property
  • Minimum DSCR of 1.2
  • Vacant acquisitions are okay

If you’d like to see terms that you would qualify for, feel free to give us a call at 410-855-4600 to speak with a loan officer, or fill out our online rate calculator for an instant quote right now.

As always, Pimlico Capital is here to serve as your funding partner for any real estate projects you might be undertaking, whether you’re building a strong portfolio of rental properties or fixing and flipping a single family home.