4 Creative Strategies for Financing Investment Properties
Finding a suitable property to invest in can be a difficult process, but finding the money to initially finance the endeavor can be almost impossible. Unless you have enough money to buy the property, you’ll have to find other ways to finance the real estate. Luckily, there are plenty of alternative financing options you can consider when financing real estate investments.
4 Alternative Strategies for Financing your Investment Property
Taking out a traditional mortgage loan from the bank is not always an accessible option, this article highlights alternative strategies for financing investment properties.
1. Seller Financing
In seller financing, the seller of the property lends the buyer money for the house. The seller and buyer decide on the terms and conditions of the loan, including the re-payment timeframe, interest rate, and default penalties.
This method is only feasible if the seller completely owns the property and is willing to act as the bank. Unfortunately, this is not always an available option. Seller financing can be slightly more complicated for the seller, therefore, not every seller will agree to offer financing. If you can obtain seller financing it is a great option.
2. High Leverage Investing
High leverage investing is the practice of placing a small down payment down while taking a large loan to purchase an investment property. This method is useful in purchasing property for future resale, this is known as futures trading. Futures trading can be quite risky, since you cannot predict the future real estate market or whether your investment will appreciate or depreciate. If you can afford to sit on a loss and wait out your investment, it can be good approach for making money on real estate.
When using high leveraging investing to purchase property it is the most efficient when rental rates and property values are increasing. If executed properly, large returns on investment can be made in short amounts of time.
3. Hard Money Loans
Hard money loans are loans given out by private individuals or small groups. These small groups lend their own money to investors and in return the lenders receive higher interest rates and shorter payback periods for their money.
Hard money loans usually have fewer requirements and take less time to acquire making them beneficial for investors who need money fast and want to cut through the red-tape. You can find hard money lenders in your area by searching the internet for local investing clubs near you.
4. Peer-to-peer Lending
Peer-to-peer (P2P) lending is a financing strategy in which an individual borrows money from a pool of money provided by multiple lenders. P2P lending is essentially an investment version of crowdfunding, as such, it is often referred to as crowdlending. Each financier who contributes to the P2P loan receives their initial principal back plus any interest that has accrued. P2P lenders mainly operate online allowing for lower overhead which allows them to offer lower interest rates for those with good credit.
Making It Work
It would be nice to have the cash and resources up front to purchase an investment property, but often it’s just not feasible for the average investor. Sometimes a great investment opportunity comes along and you must decide whether to pass on the deal or find creative ways to make it work.