Financing Your Real Estate Investment Properties

What are the best options for financing investment properties today?

Learning how to leverage credit, equity and cash flow in your properties is one of the most powerful tools available to those that invest in real estate. It can help new real estate investors get started and scale and grow a sustainable real estate investment portfolio. And can also help new and seasoned real estate investors lower risk, and boost investment returns. Fortunately financing investment properties has become much easier. The big question is which options are the best for you?

Your Retirement Savings

Those that like the idea of paying cash for investment properties can actually use their 401k, TSPs (Thrift Savings Plans) and IRA savings, by rolling them over into a self-directed IRA. This gives investors checkbook control over what to invest in along with all the tax benefits of a retirement account. Most expect to be able to earn higher returns investing in real estate than other types of investment vehicles financial advisors might choose.

Refinancing & Home Equity Loans

Those that already own property may be able to tap into their existing equity for financing current and future investment properties. This could be through a home equity loan or line of credit, or by refinancing to pull cash out of existing investment properties, primary residences and vacation homes you own. The one danger here is if investors use this tactic to mortgage their primary home there is no guarantee they will see an ROI (return on investment) immediately. Remember that any mortgage loan attached to your home can put you into foreclosure if you don’t make the payments or default in another way.

Credit Facilities

Hedge fund backed commercial mortgage lenders now offer credit facilities or credit lines for buying commercial and residential investment properties to rehab and resell or hold as income properties. Having one loan that can be used fluidly over multiple properties can provide some efficiency and operational benefits.

Transactional Funding

Transactional lending is still a fairly new concept for most real estate investors. It has only really formalized post-2008. Transactional funding can provide 100% financing for investment properties. Even for those without good credit, assets, or strong incomes. The catch is having an end buyer already lined up in advance. This is perfect for those aiming to wholesale real estate.

Hard Money Loans

Hard money loans are equity based loans. That means loan approvals mostly rely on the value of the property, rather than the financial strength or credit of the borrower. They are typically very easy to qualify for. Credit, income, and personal asset requirements are minimal. Hard money lenders offset this risk with lower LTVs (Loan-to-Value). However, these lenders are used for more creative financing and deal structuring in comparison to conventional mortgage lenders.

Down Payment Grants

One of the little known hacks for those starting out in real estate is combining down payment assistance grants with more conventional mortgage loans. While down payment assistance is normally reserved for first time home buyers and those buying personal residences, they can be used to purchase small multifamily properties. Like duplexes and triplexes. This means you can buy a home and rent out a couple of the units for income.

I”ll See you at the closing table,

Marcel Umphery the “R.E.I. Successmaker”