Jan 25, 2023

Investors often want to know how much money they need for their initial investment in a property. After all, the more money you have at stake, the more potential your investment property has to earn you a return. Investment properties can be expensive. The good news is that you don’t necessarily need a lot of cash to purchase one. In this blog post we will explain several creative ways you can finance your investments without using up all your cash. 

Mark Twain- Writer and Humorist

Consider purchasing investment properties with one of these options.

• Conventional Loans- Freddie Mac and Fannie Mae prescribe conventional loan terms, and down payments range from 15% to 25% based on an applicant’s credit history. Loan costs and mortgage interest rates are usually reasonable.
• FHA Multi Family Loans- These FHA-backed loans are good for properties with 2 to 4 units and may be suitable for a borrower with poor credit-report ratings. Down payments are 3.5% for borrowers with 580 credit scores, and down payments as little as 10% for borrowers with credit scores from 501 to 580. The only con is the borrower will be required to reside in one of the units as a primary residence for the first 12 months.
• VA Multi Family Loans- Active-duty services members, eligible spouses, and veterans can borrow VA multifamily money. There is no down payment and no minimum credit score is required. These loans can be used to buy a 2 to 4 unit residence, but you must live in one of the units.
• Portfolio Lender- Instead of selling their mortgage loans to government-sponsored agencies like Fannie Mae and Freddie Mac, local community banks and portfolio lenders keep them on their own books. Because mortgage loans are usually for a longer period of time and are tailored to the borrower's needs, there are usually more flexible terms and conditions sited. This may be a good option for a borrower with a lower credit score or a high debt-to-income ratio.
• Private Lender- Rather than investing in real estate directly, private lenders finance investors seeking to purchase rental properties by providing funds. They tend to have faster financing timeframes. 
• Group Investing- Investors may choose to structure an LP or LLC to invest in real estate rather than obtaining loans from banks. Instead of an individual being a landlord, the LLC owns the real estate and investors own shares of the LLC as members.
• HELOC- Or Home Equity Line of Credit is a way for a borrower to convert accumulated equity into hard cash. A HELOC is a second-position mortgage on a property and functions like a credit card. A borrower may use up to 80% of the equity in a property to purchase a rental property, including any needed repairs, with little to no restrictions from a lender. They can access these funds any time they need them, offering flexibility.
• Hard Money Loan- A hard money loan is best suited to flipping an investment property rather than buying and holding it, leasing it out, or developing it. These loans might be easier to qualify for because the focus is more on the property's profitability rather than on the borrower's credit and income.
• Home Equity Loan- Similar to a HELOC but this loan is a good option if you want to buy one property and know how much it will cost you to buy, fix, and rehab it. HELOC loans are better for buying and selling multiple properties in quick succession.
• Cash Out Refinance- Another form of drawing on your homes equity the cash-out refinance would come with a set monthly payment, but it may extend the life of your existing mortgage. That would have to be weighed against the anticipated returns that an investment property would bring in. If you have a longer loan term, you might end up paying more in interest for the primary residence.
• Crowdfunding- These websites provide affordable short-term lending for fix-and-flip deals. Interest rates can be 8-10%, with down payments up to 20%. If you are looking for an alternative to a hard money lender, this could be the deal for you.
• Online Rental Property Loans- Online lenders offering rental property loans are one of the most promising alternatives to conventional mortgage lenders. The rates and fees are usually comparable or just slightly higher, but many lenders do not submit to credit bureaus and they can usually settle faster.
  
• Seller Financing- Is a type of real estate contract that permits a buyer to send payments to a seller over time rather than via a conventional mortgage from a financial institution. Essentially the seller is the bank in this situation and if you are interested in this type of financing you need to be able to negotiate terms with ease. 

Investors are always looking for ways to grow their money, and opportunities don’t come more easily than real estate. Real estate is a great investment, as properties tend to appreciate in value over time. However, becoming an investor doesn’t come without its challenges. There are so many different types of real estate and financing strategies available that the average Joe doesn’t know where to start. Fortunately, with a little research, you can find the right strategy for your needs and start investing in real estate with confidence.

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