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Why is the interest rate on a home purchased for a rental higher than owner occupied?

and is there is general formula as to what the rent should be?
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May 24 2011 - Summerlin South
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I also feel single family residential rentals should not be considered in the same rick catagory as apartment and commercial loans.  I look for positive cash flow of at least $300 a month including all cost plus 10% for property management.  If you can't get cash flow with a professional property manager, you shouldn't be investing.

David Cooper-Las Vegas
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June 07 2011
I claim BS on the reasons given below.

"risk is higher on an investor" Horse stuff! When someone with a million plus in liquid assets buys a home with 30% down, at a screaming price/rent ratio, the risk is 100 times less than a 3.5% down fha buyer.

I am buying homes that rent for over twice the mortgage, and still paying a higher rate... The odds of letting a home with a 1200 rent go to foreclosure on a 550 mortgage round to 0% long term, whereas homeowners lose jobs, get divorced, and have put so little down the pain to walk away isn't much at all.  
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May 28 2011
The interest rate is only higher if you add the LLPA Fees into the rate.
https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf

Happy funding, Rudi
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May 25 2011
The other agents are aboslutely correct, the risk involved with lending on an investment property is higher and so too is the rate associated. Many lenders have different rates, so feel free to call around a little.
A realtor can give you the rental comparisons on any home you are looking to purchase, that way you can see what your return on investment is before you even make an offer.
Let me know if you need any other assistance.
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May 24 2011
It's riskier for a lender.
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May 24 2011
There is no general rent formula since all markets are unique.  However, as a very general rule of thumb, what you should look for is a monthly gross rental amount equal to 0.7% to 1.0% of the purchase price.  That will usually cover all expenses and leave you with some cash flow.  Again, this is a general rule of thumb.  Many of the investment properties we offer today are seeing these ratios as high as 1.3% or more providing investors with double-digit cap rates.

Good luck,

Marco Santarelli
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May 24 2011
Higher risk that the "asset" (the home) won't be taken care of. The property, of course, is the security to the lender.

I've been reviewing rental rates in Summerlin the past few weeks. Days from listing to rented have fallen in half over the last few months! So, it is a good time to be a landlord. Your property manager will be able to guide you on the market rent range for your house. Or email me and I can help.

John Brassner
Prudential Americana Group, REALTORS
www.MLS-Vegas.com
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May 24 2011
I'm sure someone will give a long winded answer for this.....but. It's really about risk management. If you owned a rental property and you also owned your primary residence and you could only afford one of them. Which one would you keep paying the mortgage.....of course the house you live in.
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May 24 2011
 
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Why is the interest rate on a home purchased for a rental higher than owner occupied?
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