Property investment has long been an excellent option for many investors. This is because it offers great protection against inflation and provides invaluable long-term appreciation and equity growth benefits. Rental property investments also provide additional benefits in the form of sustainable cash flow in monthly rental incomes. Plus, income property offers the opportunity for some fair tax cuts as well.
If you’re a first-time investor, the first phase of property investment can be challenging. In fact, learning the intricacies of property investment is overwhelming on its own.
So, if you want to get into property investment but don’t know where to start, here’s a quick guide on financing your investment property.
1. Private Money Loans
Private loans are funding from one person to another, usually from your family or friends. Even if you don’t have close people who can lend you money, you can still get funding by reaching out to a property finance partner or property investment network events. Companies like Leveo have a multi-skilled crew that can help you bridge that gap between you and the private lender. They have professional finance specialists committed to finding the right answers to your financial problems.
The interest rates and loan terms on private loans may differ substantially depending on your relationship with the loaner. The loans are also usually guarded by a legal agreement that allows the loaner to seize property if you fail to repay the money. If you’re new to property investments, consider how defaulting on the loan may affect your relationship with your loved one before signing the contract.
Conventional Bank Loans
Conventional loans are one of the most convenient sources of financing for property investment. A traditional loan complies with certain guidelines set by the government, though policies and requirements may differ depending on your location. Also, your credit history and score will affect your chances of getting approved and the kind of bank rate that applies to the credit.
The bank will also review your assets and income. It does this to know if you can afford to pay the monthly loan payments or any existing debt on an investment property. Note that many creditors expect you to have more than six months of cash put aside to insure mortgage pledges.
2. Consider Hard Money Loans
A hard money loan is a short-term loan you can acquire from a private creditor. This type of financing is mostly used by people interested in flipping properties rather than buying and keeping, leasing out, or developing.
Although the interest rates are higher for hard money loans, the advantage is that you’ll receive the loan based on the equity of the property rather than your borrowing ability.
Also, it’s possible to use a hard money loan to buy a property and pay it off immediately with a private, conventional, or home equity loan. However, if you’re a starter in property investments who’s not planning to flip them, you’re better off going with one of the other alternatives because they’re more cost-effective and convenient.
Receiving money from this kind of loan in just a few days is possible, unlike conventional funding, where you have to wait for weeks or months to close the deal.
3. Home Equity Loans
Home equity loans are one of the best options for investors with already existing properties. These are loans that are served against the equity of other properties to organize finances for buying other assets.
The major advantage of equity loans is that you can borrow up to 80% of the property’s equity value and use the money to buy and renovate the home. Moreover, equity loans are more profitable for experienced investors despite having high mortgage interests.
4. Finding An Investment Partner
Another option to finance your property investment is finding a partner to work with. An equity partner will receive a share of the total profits you’ll get depending on the agreed percentage.
Investments partnership can be arranged in a 50-50 structure or any way you decide to divide the returned income. You and your partner can split the resale earnings if you choose to sell the property.
Also, if you retain the property as a lease or rental, you can split the income and distribute duties equally, such as maintenance, property management, and repairs. Make sure that a lawyer sketches a contract for you if you take this arrangement. Having written terms and conditions help you and your partner keep track of what’s expected of you, helping prevent conflicts.
Start On The Right Foot
Property investment can be a risky venture. But it does have big potential returns. Finding the money to finance property investments doesn’t have to be overly nerve-racking if you know where to look. Start comparing different borrowing methods and their long and short-terms costs. In the end, it’s all about working within reasonable options.