Real estate is a great investment but getting into the properties game can be hard. Finding the right way to finance your investment properties can seem overwhelming at first however, no matter your situation there’s a great financing solution available for you.
Traditional mortgage loan
Every property and property owner is different and a traditional mortgage loan covers a wide variety of property investments.
These types of loans are offered by private groups like banks, private lenders, or savings institutions. All lenders differ in the requirements for getting a loan but anyone can apply. Typically these lenders look at credit score and are looking for anything above 600 before they’ll sign off on the loan. They also ask for a down payment of at least 20% which results in lower monthly payments for the duration of the loan.
Traditional mortgage loans work well for bigger projects that have a lot of capital already backing them. This ensures that you have the full 20% down payment available and can handle the monthly payments.
Fix-and-Flip loan
If your goal is to buy cheap investment properties and renovate them quickly than this type of loan will work best for you. These loans are often referred to as private equity loans.
To secure a fix-and-flip loan the lender takes the value of the investment property as collateral and insurance and decides whether to give the loan based on their evaluation. These types of loans do not look at credit scores so much like a typical loan to ensure that their money will be paid back. The property itself is what the lenders typically focus on.
These loans are much shorter than traditional loans and so the interest rate is much higher. Choosing a flip-and-fix loan is usually only done if you’re sure you can make a profit off the property in a short amount of time.
Home equity loan
All loans have their pros and cons and a home equity loan is no exception.
This type of loan can get a real estate investor up to 80% of a home’s equity value delivered to them in the form of a loan to buy an investment property. The lender does this by using the investors existing property as security for the loan. Money from the loan is paid to the investor up-front and monthly payments are required after to pay off the balance and interest.
A home equity loan works well for real estate investors because they’ll be able to pay off the money they receive up-front in monthly payments. However, they could lose their property that was put up as security if they can’t keep up with the payments.
Private money lenders
If you’re looking for a highly personalized financing route, private money lenders could be the way to go.
These are individuals who are looking for a great return on their investment and are just as excited about the property as you are. This is much less formal than other types of financing but still has many of the same aspects. The lender and investor agree upon a set interest rate that will be paid back over time. If the investor doesn’t pay, the lender can foreclose on the property to redeem their losses.
Again, this is a quick turnaround for investors. If you believe you can raise the value of the property in a short amount of time, working with a private money lender would work well.
Real estate partnerships
Having an equal partner in a real estate investment can be a great route when you’re just starting in real estate investment.
The partner can be as active or passive in the project as they choose but all of the roles are delineated beforehand to make sure that roles are clear. The partners share equally in all the profits obtained from the property and the partner’s investment may go toward covering the cost of the entire property or just the down payment.
Takeaway
Take time to evaluate the needs and situation for yourself and your investments. If you have the money to take on the project yourself if you need or want a partner, and if you want to make it a short or long-term loan all determine what type of loan and lender you’ll need.
Whether you work with a partner or a bank, there is a financing situation that will work for you to get your real estate investment dreams growing and going.
