We all know it is quite easy to come up with the idea of becoming a real estate investor. It can be just as easy to find the right investment property to buy. What may be a little difficult, however, is coming up with ideas for investment property financing.
Financing rental properties can be the biggest hurdle real estate investors face when trying to grow their business. That is why we constantly urge investors to start thinking outside of the box. It is 2019! There is a lot more to investment property financing than simply taking out a bank loan. Mashvisor is here to give you some helpful tips on finding the best investment property financing approach for your needs in the US housing market 2019.
Mortgage Rate Trends in 2019
Before choosing any real estate financing methods, looking up any rental properties to buy, or even thinking about buying an investment property, you need to have done enough research. There is no point in investing in real estate without getting back a good return on investment and your choice of investment property financing can greatly affect this. So, anytime you do anything in this field, it should be done after you have collected and understood as much information as you can. With that being said, let’s learn as much as we can about mortgage rate trends in 2019.
As many sources have confirmed, most experts predicted a financial forecast for the US housing market 2019 in which mortgage rates increase several times. However, they also believe that investment property mortgage rates will not go higher than about 5.1-5.5 % in 2019. Also, although mortgage rates are on the rise, they, as well as house prices, are looking to stabilize.
After hearing the financial forecast for this year, you may be considering alternative investment property financing methods to finance your property if you think the mortgage rates will be too high for you. So while a mortgage may be the best approach to financing for some real estate investors this year, you might want to look into other methods first.
Related: Investment Property Mortgage Rates in 2019: All You Need to Know
Private Lenders for Financing Rental Properties
Given the recent rise, as well as the expected continued rise in investment property mortgage rates this year, experts suggest putting down a very large down payment to avoid paying interest on larger investment property loans in the future. Now, in reality, not all real estate investors have a huge amount of disposable income that they can just hand over whenever they need cash for investment property financing. There are other ways to come up with this large down payment and avoid the high interest rates.
One of these ways is to get money from private lenders who won’t charge you interest. A private lender is just a fancy name for family and friends. What you can do is ask friends and family for small loans and pay them back in installments. You can pool the money from all of the lenders together for a down payment for the rental property. Then, pay back the money to your acquaintances without interest.
We should note, however, that this is a step that should be taken with caution. Only borrow this money from people you know if you can guarantee that you’ll be able to pay it back. Remember, there is not always a guarantee for positive cash flow for every income property. Keep that in mind when choosing who to borrow from.
Partnerships in Investment Property Financing
Another great way to get a large down payment for an investment property is to simply get a partner! When you take on a real estate investment on your own, you will definitely reap the benefits for yourself. However, you will also be taking any financial hits all by yourself too. Having an investing partner means having an increased down payment, having another person to rely on if there is no positive cash flow for a while to help pay the mortgage, and not having to borrow money from people you have a personal relationship with. After you save more money, you can think about buying an investment property on your own.
Not sure where to find a real estate partner? Then read: Getting Started in Real Estate: How to Find a Business Partner with Money.
Mortgage
While we are always looking for ways to avoid the king of all investment property financing methods, a mortgage always seems to come back as a great option when investing in real estate properties. Although mortgage rates are increasing, taking out investment property loans from mortgage lenders is still a great option. That is if you know what you are doing!
Here’s the deal, mortgage lenders such as banks run a business. They let you take money with the expectation that you will return that money with interest for profit. You just need to get approved for real estate investment loans and pay off your debt to the mortgage lender.
Related: Rental Property Mortgage: The Ultimate Guide to Getting Approved
The first part of that equation will be pretty easy as long as you have a good financial plan, a good credit score, and a low debt-to-income ratio. The second part of that equation is just as easy! To figure out if you will be able to pay off the payments for your loan with the income from the rental property you are interested in, you need to know your expected monthly payments as well your expected monthly cash flow. Use a mortgage calculator to figure out your expected monthly payments. Then simply use an investment property calculator to see the expected monthly positive cash flow from this property. If the investment property calculator tells you that your income property will allow you to make a higher positive cash flow than you need to pay off your mortgage payments, then that property is a smart investment.
Real estate investment calculators such as the one provided by Mashvisor take into consideration the investment property financing method in order to calculate your return on investment so that you always have the most information before investing in rental properties. Sign up to Mashvisor now to try it out for yourself.
Final Thoughts
As you learn more about investment property financing, you will find better ways to use financial trends to your advantage. The real estate financing methods mentioned above are only a few methods out of many. It is up to you to find the most convenient way for you to make the most profitable investment. Continue to learn more about the real estate market. Watching house prices, and utilize tools such as mortgage calculators and investment calculators to find the best financing options for yourself.