While selecting a great investment property is complicated enough, once you've found that ideal house or apartment, how do you finance it? Creativity and preparation can bring financing within reach for many real estate investors.
An investment property is real estate purchased to yield income (i.e., earn a return on the investment) through rental income or appreciation. Investment properties are commonly purchased by a single investor, a pair, or a group of investors.
Make a sizable down payment
This is perhaps the most important tip of all. You'll need enough money to cover at least 20% of the purchase price and more if necessary. Without a down payment, you may not be able to compete for the property or may have to settle for a smaller home than you would like.
Be a "strong borrower"
A strong credit history can make financing investment properties easier. Still, it's also important to remember that lenders want borrowers who will be able to repay their loans in full and on time. Plus, don't forget about associated fees and interest rates - they can add up quickly!
Turn to a local lender
If your down payment isn't quite as large as it should be, or if you have other extenuating cases, consider going to a neighborhood bank for financing instead of a large national financial institution. Local lenders are generally more willing to work with first-time homebuyers and people with unusual credit histories or limited access to traditional loans. They also tend to offer lower interest rates and more flexible terms than larger banks.
Ask for owner financing
In the days when almost anyone could qualify for a bank loan, a request for owner financing would make sellers suspicious of potential buyers. But now it's more acceptable because credit has tightened and criteria for borrowers have risen. Owner financing is becoming increasingly popular these days because it offers sellers several advantages over traditional lending methods.
Tap into your home equity
If you have substantial equity in your primary residence or other investment property, you can use it as a form of financing. There are a few different ways to tap your home equity. You can take out a loan, use the equity as collateral for a loan, or sell the equity outright. Each of these options has its own set of benefits and drawbacks.
If you're ready to take advantage of the benefits of real estate investing, it's time to research properties in your area. There are more ways to consider whether you're ready: Evaluate your financial stability and return on investment for a certain property and determine whether you have time to manage a property. You'll also need to consider the housing market, property taxes, and whether you'd want to hire a property management company.
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