If you are a beginner real estate investor and looking for methods of financing rental property, then you have come to the right place. Keep reading to find out how to do so in addition to some financing tips.
As financing rental property is the first concern for new real estate investors, we want to spot the light on this matter. In fact, what we want you to understand is that financing the purchase of your investment properties is the easiest part of real estate investing. So, do not get intimidated by the idea. Therefore, keep reading as we are going to talk about the methods of financing rental property.
Related: Buying an Investment Property: Where Do You Find the Money to Do That?
Methods of financing rental property
All in cash
Obviously, if you have the financial resources to fund a business, then go ahead. This is the easiest way to go about financing rental property when available. However, many real estate investors do not have the ability to invest all in cash, therefore, they prefer getting a loan to do so.
Borrowing money
A traditional way of financing rental property is by borrowing the money from a family member or a friend. Look around you and see if you can think of someone who would be willing to help you out. If not, then do not worry, there are plenty of other ways to finance a rental property for your real estate investing business.
Mortgage
A mortgage is the most common financing method available in the real estate market. Though you will need to put a down payment (usually a minimum of 20% for investment properties), it is still better than paying the whole investment property in cash. Moreover, some investment strategies are easier to finance with a mortgage. Applying for a loan with the purpose of financing rental property makes it easier to qualify for one.
One thing to keep in mind is your credit score. Basically, it represents the history of your borrowing. Banks look for a credit score of at least 620. However, if you are looking for less interest and an extended payment period, then you should have at least 660 in credit score.
Related: Should I Sell My House or Rent It Out to Fund Mortgage Payments?
Find a business partner
If you do not have the money to invest and cannot qualify for a mortgage, then co-invest. Yes, as simple as that. However, keep in mind, that in order to find someone who is willing to hand you his/her money, you will have to give something in return. By that we mean that you will have to have the real estate knowledge, experience, and deals. In addition to that, you have to have a detailed investment plan to propose in order to get potential real estate partners interested. To learn more about real estate partnerships, read our blogs “Real Estate Investment Partnerships: The Pros and Cons of Investing With a Partner” and “Where and How Can You Find a Business Partner For Your Real Estate Investing Business?“.
Tips on financing rental property
Choose the right investment strategy
When we say choose the right investment strategy, we mean that you should go with real estate investment strategies that are easier to finance. Though we are talking about rental properties, there are residential rental properties and commercial rental properties. In our viewpoint, we do not recommend the strategy of investing in commercial real estate properties for new real estate investors. Instead, we think that investing in residential rental properties is the best real estate investment strategy to go with. Besides, it is easier to finance than any other type of property.
Go to a local bank
Sometimes, it is hard to qualify for a bank loan due to the strict terms and conditions. However, a good tip for financing rental property with a loan is looking at smaller local banks. This tip could be useful even if you are considering a private lender. Such banks and lenders tend to have more flexible terms which are good for you.
Check the terms of the financing
Before signing up for any loans, you must double check the terms. Make sure they are suitable for you and serve your real estate investment goals right. Also, make sure you are capable of committing to the payments. If you feel that the monthly payments are too high for you to pay, then negotiate for less. Do not put yourself in financial bonds for your business is the first to suffer.
Related: Landlordology 101- How to Become a Landlord with No Money
Prepare your down payment
A down payment is required by all lenders. However, it varies depending on the mortgage’s terms. Typically, a 20% down payment is required by all lenders. But you can most definitely find a lender who requires less if you do not have the 20% on hand. All you have to do is proper research and you should be able to find what you are looking for.
Acquire budgeting skills
Budgeting is essential. Set a budget for yourself and know how much and where you spend your money. Otherwise, it will be hard for you to control and keep track of your finances. Be smart with your spending, at least at the beginning of your real estate investing business.
Related: The Best Real Estate Investing Tips for Cutting Down on Your Expenses
Go creative
Creative real estate investing is a great option for those who do not have the money for financing rental property. There are great investment strategies that do not require much capital for new real estate investors to benefit from.
Check out our blog ” Is Creative Real Estate Investing Really a Thing?” to learn more about financing rental property through creative investing in real estate.
How can Mashvisor help new real estate investors?
When it comes to investing in real estate, Mashvisor is “the source” for real estate investors. If you are a beginner real estate investor, then this is the place to get educated. Visit our website to learn more about real estate investing as well as about starting a real estate investing career. Also, check out our property listings to find the best rental properties for sale.