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Rental property financing can be a bit overwhelming for most real estate investors. It is especially challenging for newbie investors. Yet, there are a few tips that you can follow in order to find the right financing for your investment property.
Here are some possible rental property financing options.
Consider applying for a loan
This funding strategy is the most common in real estate investing. It’s not only for newbie investors but for experienced investors who are looking to grow their investment portfolios. So, whether you’re looking to start out investing or expanding your already existing investment business, credit is critical to ongoing success.
Therefore, you must know that there are a variety of sources and loan programs that are offered to smaller property investors. Here is a set of the resources and loan programs that you can benefit from:
Bank loans
Maybe the most popular rental property financing option is getting a bank loan. Understand that almost all bank loans require a down payment of 20-30%. Therefore, if the property you are about to purchase is worth $100,000, this will require you to pay a minimum $20,000 deposit. But keep in mind, depending on your credit and financial situation, some banks may require more than 20%.
However, if you feel that you might not be qualified for a loan, try to undervalue a larger down repayment. Some banks take that into consideration, which might work as an objective for the bank to accept the application.
Owner-occupied loans are common in real estate investing as well. These loans require that you stay on the property you are purchasing usually for at least one year. After the term ends, you can still go on with the same loan conditions while renting out your property. Therefore, this is one of the ways you can get leasing property financing as a beginner investor.
This option (owner-occupied loan) is fantastic for you considering many aspects. First, you get to find out about the property, its conditions, its flaws and any necessary improvements. Second, you get to choose a property that, if you were the tenant, you want to live in. Finally, you get to pay money for one property rather than buying two and paying for two financial loans.
Private lenders
If the loan company rejects your application, that does not necessarily mean you will not be able to borrow the amount of money from other similar financial institutions. There are lots of mortgage brokerages and online lenders that are willing to finance you. If you do not qualify for a mortgage, it does not mean you are not eligible for other money lending programs from different sources. Consequently, if you are considering an online lender or a mortgage brokerage, then ensure you do some research on them. Also, make sure you understand their conditions and terms.
Real estate partnerships
Partnerships are among one of the finest ways to finance rental properties. Sometimes a property investor does not have the right finances to get started investing in real property. However, he/she may have the knowledge and access to other deals available in the business. Consequently, finding a real estate partner who would be enthusiastic about financing the business in exchange for knowledge and great deals is a wonderful option.
True real estate partnerships are great in many aspects, especially, for beginner investors. Primarily, real estate partnerships allow several buyers to pool their resources. As we have stated, sometimes you have the skill and the package but not the amount of money required. Consequently, finding a person who is willing to make investments from his/her money, with the resources you are providing, is good. Secondly, in real estate partnerships, you get to split the tasks and risks. You’re able to do part of the tasks connected to the rental property, and you hold the responsibility for making sure the deal works well.
Taking into consideration all the important points mentioned above, a real estate alliance might be the best and the safest option for you. Just ensure you find the right real estate partner, whether it is a relative, a good friend, or even another real estate investor.
Owner financing
Owner financing is a great method if you have trouble qualifying for conventional financing. Basically, you provide the seller monthly payments rather than purchasing the property all at once. However, keep in mind, that in order for you to do this, you have to have a plan. To can’t just ask for owner financing without having a good solid plan written and presented to the owner. Years ago, it used to be suspicious to request owner financing when loans were available for almost anybody. Yet, nowadays it is much more suitable due to the stringent conditions and qualifications required by banks. So, in order that you can convince the property seller, you have to put a proposal together with all the required details and terms.
Finally
Before taking any action towards rental property financing, you have to educate yourself about all the alternatives available for you. Learning all you can about financing is quite challenging and requires that you really know what you are getting yourself into. Calculate every step of the way and ensure your steps to match economical circumstances and goals. Otherwise, the results might be disastrous for you, especially, if you are just beginning in real estate investing.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter, and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at-risk children.
