5 Investment Property Financing Strategies
Real estate can be a lucrative investment. For the beginner looking for a way into investment property ownership, having inadequate funds can present hurdles that seem impossible to overcome. Fortunately, there are multiple avenues for financing. The terms will vary among your financing options. Down payment requirements and interest rates can vary dramatically, so it’s important to understand your options so you can make the best decision based on your needs.
Here are 5 financing strategies to consider.
1. Traditional Bank Loans
Traditional bank loans are the most common type of loan an investor can utilize. The process can be lengthy, from application to approval. The bank will require a loan guarantee and will likely use your property as collateral. This will require you to have equity in the property should you default on the loan. To start out with equity, the bank may require a down payment of up to 20% of the value of the property.
2. Private Lenders
Private lending is community lending. In this type of financing, you rely on family and friends to help you meet your initial investment goals. The benefit is the lack of an application and approval process. There are no rules for how this type of financing is obtained or if a guarantee is required. It will be up to you and the person who lends you money to agree to the terms of the private loan on your investment property.
An investor is someone willing to invest their money into the real estate you wish to purchase. You will need to have a well-developed business plan to attract an investor. Once you find an investor, that person will act as a business partner for your investment property.
4. Mortgage Brokers
Working with a mortgage broker can make it easier to find a lender. While the broker is not the lender, they also do not private their services free of charge. Mortgage brokers receive a commission for their work and that expense will have to be paid with your closing costs.
5. Seller Financing
This is perhaps the easiest method for getting into investment real estate. Instead of using a bank or other lender, you make payments to the owner of the property. The downfall is the seller will require a higher interest rate and may even increase the price of the property.
It is possible to get into investment property ownership without a lot of cash. Knowing available options will be important in determining how much property you can afford.