Investing in real estate provides many benefits such as an increase in cash flow, tax benefits, and home appreciation. One of the most significant misunderstandings of investing in real estate is that you must already be wealthy. This is simply not true. There are many real estate financing options available to investors. Below you can find three of the most common choices when it comes to real estate financing.
If you have good credit and are purchasing a house with no repairs, conventional loans may be the right option for you. Conventional loans are one of the most popular types of loan and offer the lowest amount of interest. Most conventional loans require a down payment of at between 5 to 25%. Conventional loans also follow strict guidelines, so there is not much flexibility.
Private money is money that is not associated with traditional lenders. Private money loans come from people who personally know the investor, like family or friends. As long as the private money lender has the funds to invest, it can virtually be anyone. Often these loans are more informal and involve less hassle.
The biggest benefit to having a private money lender is cash and speed. Investors can provide cash which eliminates the worry of the loan being processed. Private money loans can also be handled much quicker. Whereas traditional bank loans may take weeks or months, private money loans can be accomplished in a little over a week.
Hard money loans are issued by private businesses or investors. Unlike a private money loan, hard money loans contain more structure and are more formal. Rather than focusing on the credit of the borrower, hard money lenders look at the value of the property. These loans can be obtained quickly and be finalized in just a few days.
Hard money loans are used most often by investors who are property flippers and are looking to make renovations on the property. These loans are best for short-term periods due to a higher interest rate.
As an investor in real estate, you need to be able to explore all options of real estate financing options. Every deal you encounter will be different from the last. Throughout your career as an investor, you will have to use a wide variety of financing strategies. Understanding these financing strategies will help you prosper and gain the upper hand in your journey of investing.