4 Top Ways to Finance Investment Property
If you’re thinking about purchasing an investment property, there are many things to learn about the real estate business before you start managing a portfolio. First and foremost, it’s important to know how to get the right financing you might need in order to start an investing career. Unlike home mortgage loans, financing for investment homes can be harder to obtain. Investors who are determined can find funding sources in a variety of places. A potential real estate investor may be eligible for a conventional bank loan, a home equity loan, cash refinancing or borrowing through a private lender.
- Conventional Bank Loan
For many people, a conventional bank loan may be the right financing package that meets the needs of the property you want to purchase. These loans are designed for the long-term and usually extend from 15 to 30 years. Down payment requirements are larger for conventional bank loans, from 20 to 30 percent. This can put some prohibitive restraints on entrepreneurs who may not have access to a large lump sum.
- Home Equity Loan
Another way to finance your investment property is by using a home equity loan from a different piece of real estate. Your residential address can be used as a collateral for this type of loan, which may be an appealing option for those who have a large amount of equity. Home equity terms last between 15 to 20 years.
- Cash Refinancing
If you’re thinking about refinancing your primary residence or another investment property in your portfolio, you can cash out the remaining funds in order to help purchase an additional home. You could get up to 80 percent of the value of your primary home to use for the purchase of a new property if you choose this option. This type of loan offers investors a creative solution if they are already homeowners.
- Private Lender
The final way to secure funding for a new investment property is by going to a private lender. Talking to different real estate investment clubs, researching business associations and just getting recommendations from other people in the industry can help you find someone who may be looking to extend financing to an investor. With a private lender, you may end up paying more in interest, but if you’ve been struggling to get approved through other lending opportunities, this may be your best bet.
Getting into the real estate investing world can pay off if you choose your financing source carefully. Try to understand the pros and the cons of each type of loan before deciding which one is right for you.