There are many advantages to real estate investing and many reap the benefits in return, including financial security and independence over the long haul. And it gets better because essentially real estate investing is a business and you become your own boss and the decision-maker in growing your business and profits. Real estate works as a part-time job or better yet, a full-time career, but it is up to you to decide if real estate is something you want to pursue on its own or keep it secondary to your day job. Now, of course, it goes without saying, the more time and dedication you put into real estate, the greater the financial rewards.
But don’t quit your day job just yet, first figure out the basics. This does not mean you must wait until you have acquired all the necessary knowledge and expertise, au contraire, you can get started today but always keep in mind that you must learn, seek, and ask for professional advice to get started on the right track.
Related: Wondering How to Make Money at Home? Through Real Estate, of Course!
Build Wealth in Real Estate from the Get Go
If you are here wondering ‘how to get money for investment property’, you came to the right place. Just to reiterate, you do not need to be financially well off to start your real estate business. In reality, many people start with small financial resources and slowly build up the business. If you select the right property in the right location, the financial returns from one investment property can pave the path to buying more rental properties and so forth. It should come as no surprise that choosing a rental property is not an easy decision and in turn requires lots of research and due diligence to materialize a successful real estate portfolio in turn.
1. How to get money for investment property via BANK LOAN
The first and most common type of financing is through your bank; if your credit score is in check, and you have the down payment on the home, then your safest bet is to get a conventional loan to get the ball rolling.
How to get money for investment property through a bank loan:
- For financing an investment property, banks require a minimum of 20% down payment.
- You will not be eligible for a loan if you have a bad credit score (no brainer but important to mention nevertheless).
- Your rental income will go towards paying off the mortgage payments, so make sure you choose a rental property in a good neighborhood and select the right tenants to ensure a steady flow of income every month.
- If your down payment isn’t quite as big as it should be, consider getting the financing means from a local bank rather than a large national bank.
Related: Real Estate Investing Is Learning by Doing
2. How to get money for investment property via HARD MONEY LOAN
Unlike conventional bank loans, hard money loans are issued by private lenders with little regard to the investors’ creditworthiness. Essentially, lenders care more about the value of the property itself and focus more on the “after repair value,” or ARV, which is an estimate of what the property will be worth once the renovation or development phase is complete. This may sound lucrative, but be very careful because the fees are much more costly than with your generic bank loan.
How to get money for investment property through a hard money loan:
- Hard money loans are convenient but very costly; the cost of borrowing is approximately 10% higher than with a conventional loan.
- These loans entail a much shorter repayment period than traditional mortgage loans, so make sure you have a clear idea of how soon the property will become profitable to ensure that you’ll be able to repay the loan in a timely manner.
- Hard money loans offer more flexible terms than the bank; real estate investors have more room for negotiations over the loan terms.
- You can use personal assets, i.e., your house, for collateral if deemed necessary.
3. How to get money for investment property via HOME EQUITY LOAN
If you are a homeowner, consider the purchase of your first rental property from the home equity you accumulated over the years. In simple terms, home equity is how much of your house you own. If you have enough equity, you can leverage a loan against the value of the home you actually own. Keep in mind, home equity loans do not exceed 80% of the value of your home.
How to get money for investment property through home equity loans:
Let’s say you own a home which is valued at $200,000 with $70,000 worth of debt on the house. You would be able to borrow up to 80% of the $200,000 discounting the $70,000.
($200,000 x 80%) = $160,000 → ($160,000 – $70,000) = $90,000 left to borrow from your equity and $90,000 worth of capital to buy your new property.
This makes you eligible to purchase a $90,000 investment property to make you a landlord and earn rental income to pay off the mortgage payments you owe to your lender. Everyone’s happy!
Related: Making Money in Real Estate Does Not Have to Be Hard. Just Follow This Advice
4. How to get money for investment property via PRIVATE MONEY LOAN
Private money loan is a loan granted from your personal relationships. If you can borrow money from a friend or a loved one with complete conviction that you will commit to paying off the debt in a timely manner and maintain a healthy relationship, then by all means you should go for it. The benefit for private money loans is that they will get a higher rate of return by receiving interest on the money to lend you. The interest rate and terms are up to you to negotiate with your lenders, and they basically become the bank for you. But beware of the risk involved in getting your friends and family involved in financing your business. How to get money for investment property via a personal loan might have negative implications if the terms of the agreement are not met.
Another way to go about private money loan is to find wealthy individuals/entrepreneurs who are avid investors (whether real estate or the stock market) to lend you money and earn up to 12-20% return on investment. But they will need a lien on the property to guarantee their returns.
Conclusion
Money should not be the obstacle to starting your real estate business because there is always a way to get capital and the financing means necessary to kick start any business for that matter. You must shift your mentality from ‘I don’t have money to start’ to ‘I need to find a better strategy to get started’. Most of the time, people create their own hurdles and self-sabotage their own success. Wondering ‘how to get money for investment property’ should not discourage you from starting a real estate business. Go out there and get ‘em!
Head over to Mashvisor for more real estate insight. Happy investing!