Perhaps the hardest step for new real estate investors is financing investment properties. Fortunately many options exist to make finding the right loan easier, regardless of whether you will be reselling the property for capital gains or keeping the home as a rental property.
For financing investment properties, two of the factors to decide are the type of loan and the percentage of financing. If you are going to be keeping the house and renting it out, go with a fixed rate loan. The investor who plans to flip the house in a couple of months would be better served by an adjustable rate mortgage, provided the length of time and interest rate are in your favor.
A down payment of 10% may be required, but in some cases it is possible to obtain 100% loans for financing investment properties. This is helpful if you lack the downpayment cash needed or if you plan to use the cash on fixing up the home instead. To decide how much of a down payment you should spend, go through the options with several different lenders.
Lenders are quite competitive for your business if your credit score is good and your income shows that you will be able to repay the loan. Before you even seek to finance investment properties you should find out your credit score. Remember that applying for new credit or closing existing accounts can lower your credit score, so simply continue to pay your debt obligations on time and keep your credit and debt ratio low. In addition to checking on your credit, you may need to prove your income when financing investment properties, so have all of that paperwork prepared as well.
If you can’t qualify for a loan, you may be able to find a partner to invest with. A partner with ready financial resources is the best option, since you will be working with someone who has the money but lacks the time. You would perform all the other tasks in connection with maintaining the property, rentals, etc.
One option for financing investment properties is to seek out a private loan. This should only be used as a last resort and only if you are sure that you’ll be able to sell the home quickly and repay the loan. Private loans can carry high interest rates and penalties that can eat up all of the profit of your investments.
Financing investment properties doesn’t need to be difficult if you do your research, find the best options for you, and work with property appraisers and a number of lenders to get the best rate. Don’t forget to discuss any legal or financial issues or questions you may have with expert professionals such as real estate attorneys and accountants.
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