Brian Russo has been a real estate investor in Florida for two decades. During the housing crisis, he bought dozens of distressed homes, which he turned into rentals. He paid cash for all of them. In today's market, cash is still king among investors because loans on investment properties are extremely expensive. Interest rates can be in the double digits, and qualifying for the loans is onerous. That is about to change.
B2R, a mortgage company owned by private equity giant Blackstone Group, just began offering a mortgage product for investors that requires absolutely nothing of the borrower, save a 20 percent down payment on the home. The loan is based entirely on the rental income of the property. Russo intends to use it to pull millions of dollars worth of cash out of the homes he already owns.
"We're sitting on $6 to $7 million worth of single-family (homes)," said Russo. "I'm going to use that money to buy more homes."
B2R's requirements are pretty simple: The investor must hold a minimum 20 percent equity in the property for a purchase, 25 percent for a refinance. The rental income of the property must exceed the owner's costs, including principal, interest, taxes and insurance (PITI), by 33 percent. In other words, if it were a regular, owner-occupant mortgage, it would be like a 67 percent debt-to-income ratio, but in this case, the income is all based on the property, not the borrower. The borrower needs to have a minimum 680 FICO credit score.