Rental property financing is a challenge to real estate investors in general. It is especially challenging for beginner investors. However, there are a few tips that you can follow in order for you to find the right financing for your investment property.
We are going to provide you with some tips on rental property financing, so make sure you take a minute to read this article.
Related: The Investment Property Financing Tips That Every Real Estate Investor Needs
Rental property financing tips
First: Consider taking a loan
This rental property financing strategy is amongst the most popular in real estate investing. It is not only for beginner investors but also for experienced real estate investors who are looking to grow their investment business. So, whether you are looking to start investing in real estate or expanding your already existing investment business, a loan is the right strategy to go with.
Therefore, you must know that there are a variety of sources and loan programs that are offered to real estate investors. Here is a list of the sources and loan programs that you can benefit from:
Bank loans:
Maybe the most popular rental property financing option is getting a bank loan. Keep in mind that most of bank loans require a down payment of 20%. So, let us say that the property you are about to purchase is worth $100,000, this will require you to pay $20,000 as a down payment. But also keep in mind that some banks require more than 20%, while others require less.
However, if you think that you might not be qualified for a loan, try to put down a larger down payment. Some banks take that into consideration, and that might work as a motive for the bank to accept your application.
Owner-occupied loans are common in real estate investing as well. These loans require that you live in the property you are purchasing usually for a year or two. After the occupancy term ends, you can still go on with the same loan terms while renting out your property. So, this is one of the ways you can get rental property financing as a beginner investor.
This option (owner-occupied loan) is great for you considering many aspects. First, you get to learn more about the property, in terms of its flaws and necessary improvements. Second, you get to choose a property that if you were the tenant, you would like to live in. Finally, you get to pay for one property instead of buying two and paying two loans.
Private lenders:
If a bank rejects your application, it does not mean that you can’t borrow the money from somewhere else. There are plenty of mortgage brokerages and online lenders that are willing to finance you. If you do not qualify for a bank loan, it does not mean you do not qualify for other money lending programs from different sources. Therefore, if you are considering an online lender or a mortgage brokerage, then make sure you do some research on them. Also, make sure to understand their terms and conditions.
Second: Real estate partnerships
This might be one of the best ways for, in this case, rental property financing. Sometimes a real estate investor does not have the right finances to start investing in real estate. However, he/she might have the knowledge and access to the best deals available in the business. So, finding a real estate partner who would be interested in financing the business in exchange for knowledge and great deals is a wonderful option.
Real estate partnerships are great in many aspects, especially, for beginner investors. First of all, real estate partnerships allow several investors to put together resources. As we have mentioned, sometimes you have the skill and the deal but not the money. Therefore, finding a person who is willing to invest his/her financial resources with the resources you are offering is good. Second, in real estate partnerships, you get to split the tasks and risks. You get to do part of the tasks associated with the rental property, and you hold responsibility for part of the risks as well.
Considering all the facts mentioned above, a real estate partnership might be the best and the safest option for you. Just make sure you find the right real estate partner, whether it is a family member, a friend, or even a real estate corporate.
Related: How to Avoid Problems Arising from Real Estate Partnerships
Third: Go with owner financing
Owner financing is another way to go about in rental property financing. Basically, you offer the seller monthly payments instead of buying the property at once. However, keep in mind that in order for you to do this, you have to have a plan. You can’t just ask for owner financing without having a solid plan written and presented to the seller. In the past, it used to be suspicious to ask for owner financing when bank loans were available for almost anybody. But nowadays it is more acceptable due to the strict conditions and qualifications required by banks. So, in order for you to be able to convince the property seller, you have to put a plan together with all the required guarantees.
Related: Real Estate Investing Tips: How to Finance a Rental Property
Finally
Before taking any action towards rental property financing, you have to educate yourself about all the options available for you. Learning all about rental property financing is quite challenging and requires that you know what you are getting yourself into. Calculate every step of the way and make sure your steps match your financial circumstances and goals. Otherwise, the results might be disastrous for you, especially, if you are just beginning in real estate investing. You can also use Mashvisor as a guide. We provide you with all the information you need on real estate investing. It does not matter whether you are looking for financing or other tips. You can always start with us from articles and all the way through market analysis and consultations to finding the best investment properties in the US.
