How To Fund Real Estate Investments

You don’t need a huge fortune to get started in real estate investing. Most investors tend to pick up properties to finance without using their own money and still have healthy profits at the end of the day.

When done correctly, investing in real estate can be very lucrative. With proper funding, you’ll be able to diversify your investment portfolio with the real estate business serving as an additional income stream.

The challenge to many new investors mostly lies in them having little knowledge of how or where to get real estate financing. The outline below can take you through tips on how you can fund your real estate investments:

Buying A Property With A Federal Housing Administration (FHA) Loan

You can kickstart your real estate investment by acquiring a mortgage insured by the FHA. With a 3% down payment, you can get a multifamily property, reside in one unit, then rent out the remaining units. This allows you to get a rental income while still holding the property. In short, you’ll be living rent-free while building an investment that would grow over time.

Hard Money Loans

Even with their low-record interest rates, traditional mortgages typically take 60 days to close, which seems quite a long period when making a deal. However, hard money loans, regardless of their high-interest rates, can offer the flexibility of striking quickly if any great deal comes your way.

Hard loans rely on hard assets. The property is the asset in this kind of real estate investment. The loan serves as a short-term bridge loan that provides funding until the house is sold or a more traditional financing stream is secured.

Hard money loans aren’t sustainable for long-term options but are valuable resources to real estate investors who need to close quickly. Good deals typically don’t make it online, and if they do, they don’t last long there. Therefore, hard money loans stand as good options for short-term investment property loans which would allow you to close the deal before obtaining traditional financing.

Non-bank Mortgage Lending

With the challenges of qualifying for mortgages, many non-bank lenders are gradually taking the market share from traditional banks. Unlike big banks which require longer periods to look at your tax returns and incomes, online lenders only require around 20 minutes to process your application.

The bank deal can take around 45 to 60 days to close the deal. However, non-bank lenders can close the deal within two weeks, and sometimes they can offer funds up to 100% of the purchase.

Paying Cash

You can make an upfront cash payment for the property which is a convenient way to finance a real estate investment. To do this, you need to have enough available resources. Upfront payments significantly enhance your opportunity to buy real estate as it eliminates any financial doubts in the seller’s mind.

Paying cash also allows you to get significant discounts for property purchases. Moreover, cash payments save buyers a lot of money in interest payments that would have accrued with hard-money, private, or conventional loans.

Buy To Rent

If non-banks and hard money aren’t your things, you can opt for other ways of sealing the deal such as asset-based mortgages. Buy to rent is a mortgage product that mainly focuses on the rental income the property is likely to produce.

Unlike traditional banks, buying to rent doesn’t look at one’s personal income, which stands as a huge benefit to people with no stable income. It can be a great way of starting your real estate investment since buying to rent is primarily based on the rental income of the property.

Buying to rent has no limits on how many properties an investor can finance, hence offers them more flexibility of continuing to grow their portfolio without having to worry about traditional financing.

Investing In Trust Deed

This is where you take a mortgage from one or more private lenders who act as a bank, offering them a trust deed as collateral on the property. This means that you have to agree to specific lending terms you have to meet. Failure to honor the agreement can lead to the private lender foreclosing the property.

Most investors are opting for this approach to fund their deals, offering around 8% to 10% annual percentage rate to lenders to invest in high yield deals. This is a strategy that protects investors against recession.

Hybrid Financing

You can take a hybrid loan to fill a financial gap in funding your real estate project. Hybrid financing is achieved by mixing a piece of ownership (equity) with the traditional mortgage payment. However, it’d be crucial to beware of scam lenders.

In composing a hybrid capital stack, it’s vital to do your homework properly to avoid wasting everyone’s time. You need to know the specialization of your capital providers to select one that would be comfortable in your specific deal.

Conclusion

Owning real estate requires one to have enough finances or financial support. Your ultimate goals for the property and your financial situation are the factors that determine the type of approach you take in funding. This guide highlights some funding options you might fancy for your real estate investments.

Jack Potter

“Entrepreneur. Freelance introvert. Creator. Passionate reader. Certified beer ninja. Food nerd.”