Are you looking for a viable financing method to gather capital for your new investment? Whether you’re a newbie looking to own your first property or a seasoned landlord with an accountant looking to expand your portfolio–this article can help you. After thorough research, we’ve gathered the top 6 most creative financing tips to get started in real estate investment.
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Financing strategies in real estate refer to the step-by-step plan individuals or organizations utilize to acquire land. Property is an expensive investment, and not many people can afford to pay cash upfront for a new acquisition. However, savvy investors familiar with creative financial strategies can work the system to their advantage. This post explores traditional and other financing options to help you buy your next property. If you need more help, hire a company that understands local real estate investment.
Bank loans are often one of the first options people consider when looking for financing. It’s undoubtedly one of the most popular, and there are convincing reasons to fall back on it. One of the most tempting motivations behind applying for a personal loan is that you don’t have to put up collateral. In other words, you stand no risk of losing the property you’ve already acquired because you missed a payment.
Additionally, you can reduce your interest payment by opting for 5-7 year periods. Although, a significant drawback of bank loans is that their rates are often high. However, if you have an excellent credit score, you could qualify for lower rates.
Home Equity Line of Credit
If you already have a property investment or don’t mind using your house as collateral, look into HELOC. Home Equity Line of Credit is another financing means where you borrow against the value of your house. Some banks can let you borrow as much as 70-80%. All that cash can then go into purchasing your next real estate investment. Once your rental property becomes profitable, you can start making repayments across 10 years. This method is an excellent idea for investors that are also into house flipping, as it offers you a quick and easy way to access vast sums of money. Besides, borrowing against your home equity line of credit is tax-deductible on interest up to $100,000.
Another traditional option you can explore is cash-out refinancing. It works best for investors who need some leftover cash after buying their home. For example, if you’re planning to invest in a house that needs some major renovation, this option might work best for you. All you’ll have to do is take out a mortgage that covers both costs and perhaps leaves some leftover funds for more investment. The obvious benefit of using this method to finance a real estate investment is that you only have to pay off one loan at a much lower rate. Thus, you can spread your payments over a more extended period since it would entail borrowing a significant sum. On the other hand, if you’ve already taken out a previous mortgage, a cash-out refinance would reset the clock on your payments.
Other Financing Options
One of the less-talked-about options in real estate is seller financing. It involves negotiating favorable terms with the property’s current owner. Unlike traditional methods, seller financing doesn’t need a bank or personal lender to act as an intermediary. Instead, if you’re convincing enough, the seller can let you take full ownership of the house in exchange for a downpayment and follow-up payments at agreeable terms. The benefit of opting for this route is that the terms are not rigid, and you can pay far less than you would with other methods. Although, this option is only viable if the seller has already paid off their house and if you have a mutual understanding.
Another out-of-the-box approach to finance your real estate investment is private money. If you have close family or friends with enough capital to support your venture, you can approach them for assistance. The benefit of this option is that you can work out more favorable loan terms because you have a prior relationship with whoever you intend to ask for money.
Crowdfunding is a relatively new strategy where investors gather money from the public. It’s more common amongst people looking to invest in commercial real estate or high-end residential property. Several real estate investment platforms and sites support users pooling money together to make a purchase. Some areas even allow you to diversify into other real estate ventures like REITs. Explore the best online options you have, create an account, put out a compelling proposal, and wait for like-minded investors to find you.
Although real estate is a capital-intensive venture, you’re only limited by how innovative you can be. We hope this article on creative financing tips to get started in real investment has given you some helpful ideas. If you need more guidance on choosing the best strategy for you or looking after your property, consider working with a professional property manager.