Getting Creative
Real estate investing can get artsy sometimes. Even when you’re financing an investment property. How? With creative financing.
Creative financing is the technique of creating new and innovative capital methods to achieve financial leverage that is not normally possible. You’re shooting to be a groundbreaker when you choose creative financing when financing an investment property.
Now, we show you some of the top methods of creative financing, along with the benefits that come with it. Get your paint brushes ready artist, it’s about to get creative.
Methods of Creatively Financing an Investment Property
To give a little spin on things, you can get creative when financing an investment property. You may even find a method that works more efficiently for you financially, and meets your goals as an investor. Here are some of the top ways of “creatively” financing an investment property.
Related: Traditional Versus Creative Real Estate Investing: Which Way To Go?
Getting Artsy With Financing an Investment Property- Seller Financing
One of the best things about using seller financing to pay off a rental property is that you don’t have to work with a lender. The property owner you are buying the investment property from is the “lender.”
Financing an investment property through seller financing results in you and the homeowner establishing set payback and interest rate terms. This also includes you paying your mortgage straight to the seller.
Normally, this is the route most deals use when the seller themselves owns a “payment free home.” This basically means the seller does not have an existing mortgage payment on their home, so the property is completely paid off.
Seller financing has its benefits as well. The ideal outcome for real estate investors that take the seller financing road for financing an investment property usually goes like this:
- Qualifying for a conventional loan in approximately 5 years
- Being able to refinance the investment property
- Pay off rental property
- And finally, have a mortgage with a bank or mortgage company.
Creatively Financing an Investment Property-Rent to Own
The rent to own option is also known as a “lease to buy.” It is just what it sounds like: you live in an investment property as a tenant with the option to buy the whole property in the future. This option of income property financing requires you as a buyer to pay an upfront fee (called option money).
The option money payment is anywhere between 2.5 and 7 percent of the purchase price (this fee acts as collateral). It’s important to keep in mind that if you decide on not purchasing the income generating property after the established rental period, you have to forfeit that “option money.”
Rent to own investors strike a deal with a seller with the hopes to put the rent they pay towards future home purchases. So for example, if your rent is $1,000 per month with a contract that states 25% will go towards your purchase, you will have $6,000 dollars in credit. Six grand all going to your purchase after renting for just two years.
The benefits of a rent to own home strategy when financing an investment property include:
- Being able to rent the home for two-three years until you get your credit score in order
- Saving for a down payment
Artistic Thinking When Financing an Investment Property- Hard Money Loans
It is no surprise that the words hard and money are in the same sentence. A real estate investor can obtain a hard money loan from private businesses or other individuals that are hard money lenders, all for the sake of investing in real estate. Hard money loans for rental properties consist of shorter-term lengths, higher interest rates, and the deal itself usually only takes a few days.
Most of the time, hard money lenders understand the process of investing in real estate much better than traditional lenders. This is no surprise since real estate itself is their specialty. Hard money lenders like to see your real estate investing reputation instead of your financial past. That is one of the biggest pluses of financing an investment property with a hard money loan.
Related: When Are Hard Money Loans for Rental Property a Good Idea?
Being a Da Vinci When Financing an Investment Property- Private Money
Private and hard money are very similar, but the main difference between the two is the relationship between you and the lender. Hard money lenders are professionals in real estate investment lending. Private money lenders typically know you personally.
Some examples of private money lenders would be friends, family members, neighbors, coworkers, and any other individuals you know that are willing to lend you money.
You are able to negotiate more flexible loan terms as the transaction itself is not as “business” oriented as a hard money loan agreement. Another difference is that private money lenders rarely receive any cash flow from equity other than the predetermined interest rate. That means more money in your pocket.
A “Financing an Investment Property” Masterpiece- Crowdfunding
Of the real estate financing strategies out there, crowdfunding is one of the newest and most innovative. Real estate crowdfunding is basically like fundraising for investment property financing with the help of the public.
The use of the best crowdfunding sites allows authorized users like you to raise money for your rental properties. It is simple and fast: choose a site, create an account, present your “case” to the public, and watch as the funds come in.
So How You Gon’ Get the Money?
There is no excuse to pass up on buying an investment property with all these ways to pay off the rental property! No matter which of the investment property financing strategies you choose, you will be able to get the job done. You are a real estate investor, and you can go out and get your money so long as you play your cards right.
Get creative when financing an investment property. Be a Da Vinci in the real estate business. Do you feel you need a bit more push to buy an investment property? Mashvisor can give you the helping hand. You want to make sure the numbers are looking good when it comes to the investment property you are looking to buy. Mashvisor can give you a glimpse at those numbers.
Related: How Should You Use Real Estate Analytics to Your Advantage as an Investor?
Our property analysis software can provide you with the numbers like cash on cash return, Airbnb occupancy rate, projected rental income, and cap rate in the area of your choice. All the way down to the neighborhood analysis! Seeing some good looking numbers will give you the confidence you need to find the funds!
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
So how are you going to get a hold of that cash? The choice is yours, and Mashvisor is willing to be with you throughout the way. You can do it, just take the first step and go from there! Learning how to invest in real estate with no money is as easy as 1,2,3, so let’s do some painting.