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How To Obtain Real Estate Investment Financing
One of the biggest misconceptions of real estate investing is that you need to have a lot of money to get started, which isn’t true. However, the secret that many professionals don’t understand is that many different real estate financing options are available to fund every investment. Understanding the financing aspect is imperative because the method in which a specific deal is funded can greatly impact its outcome.
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As an investor, there are a few different ways to go about financing real estate investments. Each one will have its own set of pros and cons, and your financing approach will depend on the property and the situation. Beginner investors need to remember that not all real estate investment financing options are created equal. What works for someone else may not necessarily work for you, but the trick is understanding which real estate financing option will compliment your business strategy. By taking the time to research the various real estate financing options out there, new investors are sure to realize how accessible investing can be. Broadening one’s toolkit of real estate investment financing options is simply a matter of being knowledgeable about what strategies exist, as well as proper ways to leverage them. Keep in mind that all investors have faced the financing hurdle at some point in their career; when in doubt, there is nothing wrong with tapping into your investor network and ask for advice.
Real Estate Financing Options
Investors with a deal lined up have already accomplished one of the most important steps in home flipping. However, finding a viable deal is only one piece of the puzzle. Once you find a good property to invest in, you need to finance the impending transaction then.
Financing a real estate deal tends to send new investors into a fit of anxiety or is even enough to compel them to pack up their dreams and retreat to their nine-to-five job. However, if an investor commits to doing his or her due diligence, the fear of a lack of funds is irrational.
If you have a great deal on the table, there is no limit when it comes to ways to fund it. A great example would be leveraging a self directed IRA, which would require some careful consideration beforehand; however, it goes to show that there are many available options for real estate investment financing. Experts at Loan Advisor suggest “Financing not only provides flexibility but also improves cash flow. There is fluidity in repayment and it provides options for collateral. I would suggest new real investor financing through hard money loans, hybrid loans, asset-based mortgages, and an FHA loan”. For investors wondering how to finance an investment property, I’ll explain some of your real estate finance options:
Cash Financing: Great for investors who have access to a significant amount of capital, either personally or through their network, and wish to purchase properties free and clear.
Hard Money Lenders: Accessible to investors who have less-than-perfect credit or financial history, and are in need of a short-term loan.
Private Money Lenders: Investors who are well-connected can often tap into capital from personal connections, borrowing money at a specified interest rate and payback period.
Self Directed IRA Accounts: Individuals who have elected to create savings through a self-directed IRA may make the decision to tap into their account as a way to access capital.
Seller Financing: Buyers and sellers can sometimes strike up a mutually beneficial agreement, allowing the investor and seller to avoid having to go through a private lender altogether.
Peer-To-Peer Lending: This is a great option for investors trying to raise the last portion of funding for a project. Peer-to-peer lending can offer high flexibility and low interest rates.
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Cash Financing
As an investor, cash is a monumental tool to getting what you want. Along with getting more offers accepted, cash financing enables investors to save on interest, increase their cash flow, and receive instant equity in their investment. It also has the ability to save investors on the purchase amount.
In the first quarter of 2016, all-cash homebuyers for single-family homes and condos paid, on average, 23 percent less per square foot than all homebuyers nationwide, according to RealtyTrac.
Also, it’s important to remember there will be times when paying cash for property makes sense and other times when other financing options should be considered. However, if you have your own capital, you should always consider using it in the best possible scenarios.
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