When it comes to investing in real estate, many people question how successful investors manage to fund their investments. Everyone wants to get the most out of their investment, especially in today’s turbulent economy, and making the right financial choices at the beginning can start you off on the right foot.
Here is a short guide about different finance options to help real estate investors make the right choice.
Get a Mortgage
Financing a property with a mortgage from a bank is the most conventional option for investors. A mortgage is a traditional loan which can run from a few years to a few decades, depending on the investor’s needs. The investor agrees to make regular payments to the lender, and the property serves as collateral in case the investor becomes unable to pay off the mortgage. This traditional finance option is unfeasible for investments with a high-risk factor. For example, banks are less likely to lend money for fix and flip properties. In addition, borrowers need to go through rigorous credit checks and they also need to make a down payment in order to get a mortgage approved.
Find a Private Lender
Private money lenders are often more flexible than banks and other traditional financial institutions. With a private lender, there are less checks and individuals with an unfavorable credit history are more likely to be approved for a loan. Depending on the lender, they can offer a variety of loans for different types of investments. For example, real estate investors who want to purchase a property quickly will require a large sum of money as soon as possible. In this case, investors can opt for a hard money loan. This type of loan is based on collateral, and can be approved more quickly than a mortgage. In fact, private lenders can approve hard money loans in just a week. In turn, investors who opt for a hard money loan are less likely to lose out on a great property. These types of loans usually have a higher interest rate than mortgages. However, savvy investors with experience and good time management skills can avoid paying higher rates if they repay the loan on time.
Pay With Cash
If you have the cash to splash then financing a new property directly with money is a great way to invest. Having the resources to pay upfront has many benefits. With cold, hard cash you are more likely to win a bid on a property, sellers may offer you huge discounts, and you don’t have to pay any interest rates for borrowing money from a bank or a private lender. When it comes to investments with a quick turnover or small investments, this is sometimes the preferred option for experienced real estate investors. However, not many investors have large amounts of cash on hand to find themselves in a position to pay for a property upfront. Additionally, investors who spend all of their money on acquisition may struggle to find money for maintenance and repairs in the long term.