The 101 : Purchasing Investment Properties
There literally is never a “bad” time to get in to real estate investing. The prospect of having more money in your pocket or retirement fund each month can be quite the turn on to many many people, even if you already have a full time job (or even a part time one). Once you have made the decision to enter into the wonderful world of real estate investing and change your future, you now have to figure out how you will go about financing this little adventure.
Mortgage Loans
Mortgage loans are loans provided by private companies like lenders or banks, which are arguably the most popular method of securing investment funding for properties.
House Flipping Loans
Easier to obtain that your average mortgage loan, the fix-and-flip loans are designed to allow potential investors to purchase a property under market value and pay to fix it up for the sole purpose of selling it. The most popular type of fix-and-flip loan is a hard money loan. Hard money loans, also known as rehab loans, are loans that have lower qualifications for approval and much faster turnaround than a normal home loan seeing some ready in as little as 15 days. One of the beauties of a hard money loan is the lender is more interested in the property’s potential than in the background of the applicant.
Home Equity Loans
One of the hardest parts about affording a rental property is coming up with the funds for a sizeable down payment, one that will will see your investment property easily making money each month. If you’re a homeowner you’re actually well on your way to affording a nice down payment using your home’s current equity. These loans are typically determined by using the amount you have left to pay on your current home and the current value of the home. Then you have two options: home equity loan or a home equity line of credit. A home equity loan is basically a second mortgage on your house, that allows you to get a fraction of your equity to use for another purpose of your choosing. The biggest difference between a home equity loan and line of credit is that a loan is generally a lump sum where a line of credit is a pool of money that can be used as needed. Also starting in 2018, homeowners can deduct interest on $750,000 in qualified home loans. This limit applies to the combined mortgages and loans used to purchase or improve a first and second home.
Private Money Lenders
Private money lenders generally provide what are commonly known as “hard money loans”, which are short-term loans, generally about 12 months but can be extended to 2-5 years that are secured by real estate. The definition of a private lender could be something as simple as a family friend, or group of investors as opposed to a bank. These loans are generally only used when traditional loans are not accessible or a short term loans is all that is warranted.
Seller Financing
Sometimes considered true freedom from the confines of standard home loan, seller financing offers both the buyer and seller to negotiate their own terms that will benefit both parties. Since the banks and traditional financing regulations do not apply sky is literally the limit on what can be accomplished. This is generally the preferred method for anyone that cannot afford a sizeable down payment, or has less than stellar credit that may impact the ability to get a traditional loan.
Real Estate Partnerships
Real estate partnerships are groups business owners, investors, or enthusiasts who work together to obtain investment properties for profit. When deciding to start a real estate partnership you must take into consideration the pros and cons of your scenario including partners, finances, and business plans.
Cash Financing
Cash financing is sometimes considered a controversial topic because if you use cash to purchase an investment property your cash on cash return flow is the same as the property’s cap rate. However with cash financing comes a few perks such as no risk of foreclosure, more control over your property, and one of the biggest perks is no interest payments.
With a plethora of options to choose from there really is never a bad time to get started in real estate investing. For more information how to make your investing dreams come true don’t hesitate to contact us today!
