6 Ways to Finance Your Investment Properties

House on stack of coins, concept for financing investment properties

As you prepare to buy investment real estate, your financing should be a top priority. It’s critical to have a spending budget and target ROI or cap rate in mind for each of your property purchases. Then, you must know where the money is coming from. Howe will you finance the purchase your investment properties, as well as other key costs like renovations, property management (if holding the property) or real estate sales expenses (if flipping the house)?

There are numerous different financing solutions you can use when buying investment properties. Here are 6-plus you can consider:

1. Cash

Cash is always king in the real estate world. An all-cash purchase will give you much more leverage when negotiating deals and can allow for much faster closings. Whether that cash is your own or borrowed from other sources, it’s ideal to make cash transactions whenever possible. At the very least, the more cash you can use the better.

2. Mortgage Loans

You may be able to apply for a mortgage loan to finance your investment properties. You may also look into home equity loans or home equity lines of credit (HELOCs) using other real estate holdings as collateral. These are traditional loans through banks or mortgage lenders, but some details may be different when using the funds to purchase an investment property.

3. Hard Money Loans

Hard money loans are different than standard mortgage loans because they are not based on the borrower’s credit rating. They are based on the value of the property being bought. Hard money loans are great short-term solutions for quick house flips or to hold the house until alternative funding can be secured.

4. Private Money Loans

Private money loans are generally similar to hard money loans, except the money is coming from sources closer to the borrower. Rather than borrowing money from the bank, you are getting the funds from friends, family or other investors. These agreements can sometimes be questionable and a bit too informal, so make sure all the details are worked out carefully to protect both yourself and your fellow investors.

5. Portfolio Lenders

There are investment groups and lenders out there who offer loans from portfolio lenders. The money is coming from other investors, which can provide a great alternative to standard loan options. However, there are usually different rules associated with portfolio lending, so proceed carefully.

6. Other Financing Solutions

There are a variety of other real estate investment financing solutions you can consider. You can create your own investment group or partnership. You can use a self-directed IRA or 401(k) account that is specially designed for real estate investors to tap into their retirement savings. There are some creative seller financing arrangements you can make like lease-to-own or subject-to financing.

Unless you have the cash on hand and ready to spend, you will want to take your time and research all the different financing solutions in front of you. Always look before you leap!

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