
There literally is never a “bad” time to get into 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, even if you already have a full-time job (or even a part-time one). Once you have decided to enter into the wonderful world of real estate investing and change your future, you now have to figure out how to finance this little adventure.
Mortgage Loans
Mortgage loans are loans provided by private companies like lenders or banks, arguably the most popular method of securing property investment funding.
House Flipping Loans
Easier to obtain than 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 selling it. The most popular type of fix-and-flip loan is a hard money loan. Hard money loans, also known as rehab loans, have lower qualifications for approval and a 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 that the lender is more interested in the property’s potential than in the applicant’s background.
Home Equity Loans
One of the hardest parts about affording a rental property is coming up with the funds for a sizeable down payment, allowing your investment property to make monthly money easily. If you’re a homeowner, you’re 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: a home equity loan or a home equity line of credit. A home equity loan is a second mortgage on your house that allows you to get a fraction of your equity for another purpose. The biggest difference between a home equity loan and a line of credit is that a loan is generally a lump sum, whereas 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, typically 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 loan is all that is warranted.
Seller Financing
Sometimes considered true freedom from the confines of a standard home loan, seller financing allows both the buyer and seller to negotiate terms that benefit both parties. Since the banks and traditional financing regulations do not apply, the sky is the limit to what can be accomplished. This is generally the preferred method for anyone who 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 of business owners, investors, or enthusiasts who work together to obtain investment properties for profit. When deciding to start a real estate partnership, you must consider the pros and cons of your scenario, including partners, finances, and business plans.
Cash Financing
Cash financing is sometimes considered controversial 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 many options, there is never a bad time to get started in real estate investing. For more information on making your investing dreams come true, don’t hesitate to contact us today!