Financing Investment Property – Options and Benefits

Financing investment property is a good way to gain income. When you are in real estate business, you will have to purchase a property, have it restored and sell it at a higher price or you can also have it rented or leased to get a steady source of revenue.

However, some people who doesn’t have enough means make the mistake of using their own money to purchase or repair the property.You will lose a lot of money and it will not guarantee that you will grow your return of investment instantly. It may take a while and worst case scenario, you may go bankrupt. And this is when you ask what could be the other options to get funds for your investments.

There are a few alternatives in financing investment property which you would be wise to learn about so that at least you have some more ideas. You will see the benefits of this if you will learn more about its advantages and disadvantages.

Personal Funds

Some people make a mistake of using personal finances thinking that it is the only choice available for them. So you will have to rely on your own money without any outside support for financing. Good thing about this is that you will not have to worry about paying anyone for the debt, lending company or partners and the revenue will be all yours. While this will help a person avoid having to do a lot of paperwork and following some strict requirements from financing companies, this can also lead to bankruptcy if the person is not careful.

Bank Financing

This is the most common way of financing investment property. You will have to borrow from a bank and secure a line of credit. Then if you will have the property leased or rented, you will be able to get a monthly income to help you pay off your debt or interest. This is the most conventional means known in getting fund for the investment. Bank loaning is an ideal choice for investors but before they can lend you, they will have to appraise the property first to know if the fund you’re requesting is reasonable. It will not be as easy as everyone thinks so it is best to understand if this option works for you before you make any final decision.

Partnership Financing

It is also a good alternative if you have one one more investors to support you in financing investment property.This means that you do not have to use all your personal finances for financing a property, and you do not have to deal with a lot of paperwork. So partnership is good if you are wanting to have a commercial property and can also work if you wish to invest in residential property. This is great choice if you have a good relationship with your partners and maintain that partnership if you don’t want to have any complication in the future.

Personal resources is not the only option available in financing investment property. You need to research and find out which options would benefit you more. If you want the bank to finance your investment, you also need to secure a line a credit and have to go through a lot of. Or you may get some business partners to help and support you with your funds but you will have to report all you do especially when it comes to the money they invested in you.

There are options in financing investment property and these are just a few that you can look into if you want to get funds for your venture. So you should learn and study the best option for your planned investment before you make further actions.

5 Ways of Financing Investment Properties

During the height of the economic crisis, a lot of people were hesitant to invest in real estate as a result of the housing meltdown. Fortunately, this stage has passed and the industry seems to be making a comeback. Today, you can easily buy in a down market and make a huge profit. But of course, you need to do your research depending on the type of investment you’re planning to make.

A good rule of thumb to follow before investing in real estate is that you should have an excellent credit rating, and you should feel financially secure. This way, even if you unfortunately experience some downsides to your investment, it wouldn’t have that much of an effect in your life. The upside is that you’ll earn a significant profit; you’ll consider real estate investment as a lucrative main or side business venture.

Now, the one problem you’d have when dabbling in property investing is where you’ll get the funds you need. How are you supposed to finance your real estate investing venture? Here are the top five ways on how you can do just that:

1: The Traditional Way

You need to have a solid credit rating and be financially stable before trying to invest in properties. The traditional way to finance real estate investments is to borrow money from banks, credit unions, home mortgage companies, and other financial institutions. Most of these have a high credit score requirement. You also need to provide a full documentation of your income and debts, and you need to shell out at least a 10% down payment. Overall, this is one of the safest and most well-known methods of financing real estate investments.

2. The Lease Option

An unfamiliar yet still suitable form of financing investment properties is the lease option. It allows you to own property for little or even no down payment. Within two or three years, you can be given the right to purchase the property while you’re still looking for financial backing. It can also be arranged that a percentage of the monthly lease payment goes towards the balance of the cost of the property.

3. Through Seller Carry Back

Also called buying on terms or creative financing, seller carry back refers to any method of financing aside from the traditional one. This is a good way for investors to use as little of their own money as possible, where sellers usually agree to carry the note of your purchase.

4. The Seller Second

For this, the seller provides a second mortgage and cash flow notes are usually involved. For example, if you’re pre-qualified for a loan which requires you to shell out 20% down payment, an offer can be made so that the seller can carry a cash flow note for 20%. The one thing you need to check when going for this option is that the loan you’re qualified for should allow a second mortgage attachment. Although there are some loans where this is a possibility, seller seconds are not allowed in most cases.

5. Using the Subject-To Method

Finally, you can go for the subject-to method which is a short-term solution for real estate financing. It means that the investment is subject to existing financing. When you purchase a property, one condition is that the existing financing stays in place. The title can be transferred but the loan will still be under the seller’s name, although the buyer is already making the payments. This financing is suitable for properties that are about to be foreclosed.