You have your business plan. You have your team of contractors and real estate salespersons ready. You have your remodel blueprints drafted. You have even found the perfect house for an investment purchase. You are ready to begin your first real estate investment property or commercial property investing project. You have found a foreclosed property that, with a little work, will be worth much more. You plan on quickly fixing it up and then listing it back on the market, for its new value. The only thing you have left is to obtain financing. Where will you come up with the money to purchase the house and then fix it up? There are a few sources of financing for the real estate investor.
Cash loans This may be the hardest type of loan to achieve. There is often little paper record, and many people simply do not have access to that large of amounts of cash. However, if you have a family member or close friend that is able to provide you with a cash loan for your real estate project, you may be able to save on interest charges. However, when cash loans are used, you will want to draft up repayment papers to ensure that all parties understand the unspoken terms of the loan. Secured short term loans may be ideal, but they are not always possible.
Hard money mortgage lenders Hard money mortgage lenders provide quick loans in return for securing a property. In other words, you can use your home or another investment property that you own as collateral. You are agreeing to pay back the full amount of the loan, and if you default, the lender receives the property, or a percentage of the property, that you put up. Hard money offers higher interest rates and lower loan to value ratios. Hard money interest rates can start at 15%, 18%, or higher. However, they may be the only option for some real estate investors.
Hard money loans should be carefully planned, because failure to pay can mean losing multiple properties for the borrower. Most hard money loans are secured by a property with a 30% to 50% equity, so the investor is well protected. They may, however, be a great option for those looking for cash quickly. Hard money deals are often sought after for their quick turnaround (usually within 7 to 14 days to process). Hard money mortgage lenders may be an option when you need additional cash quickly, to finish an already started project.
Traditional or conventional mortgage This is the same type of mortgage you would apply for if you were purchasing the home for residency. However, there might be different terms in the loan, because it is a renovation lending loan. Investment mortgage lenders may be able to use equity in your residential home to obtain financing. This may be ideal of hard money mortgage lenders for some because of the lower interest rates and ease of repayment options.
First time home owner lending The government has many financing programs for those who are first time homeowners. However, this may not be the best financing for your investment property. Many of these loans require that the owner live in the house for a set period of time. If you are looking to purchase a home and fix it up while living it in, then this type of loan may be a good option for you.
Most people have heard success stories about real estate investment projects. You may be interested in becoming a part of the business, but are unsure of where to obtain the necessary financing. Investing basics require that you first, develop a strong business plan. Be sure that you know what you are doing before taking out a loan. When you are ready, find financing. Real estate investment financing can come from a variety of sources, including personal and cash loans, hard money mortgage loans, traditional loans, and first time home buyer loans.