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5 Suggestions for Financing Investment Property

By Dixie Somers | May 9, 2017

Real estate prices have been climbing slowly back since the Great Recession. Property is once again looking like an attractive prospect for investors. It still requires a large upfront cost compared to some other ventures. Here are some tips for financing your investment property.

1. Maximize Your Down Payment

The more you come up with, the lower your interest payments and the higher your returns. It usually takes at least 20 percent of total cost to secure lending. Anything higher not only saves you money but may qualify for a lower interest rate. Shoot for at least 25 percent before seeking out a lender.

investment property

2. Be a Reliable Borrower

If your credit score is lower than 740, you'll either be paying points or a higher interest rate. Before making a major investment, it might be worthwhile to check your credit score and use some of your savings to resolve any outstanding debts.

3. Avoid the Big Banks

A national bank is likely to have harsher qualifications for loans, and to give you little leeway in meeting them. Some banks will require you to have cash reserves to cover operating costs for any rental properties you already have. Consider going for a loan at a local bank. They tend to be much more flexible. Mortgage brokers may also be willing to work with you. Just be sure you understand what's involved.

4. Independent Financing

You can always request that the property owners finance you. If it's someone you know, or someone who's willing to negotiate or at least listen, it's always a possibility. Look for an association of investors, then try to identify the best prospect and prepare to make your pitch. The drawback is that you'll have to sign an agreement and surrender any interest in the profits proportional to the other investors' contribution.

5. More Options

If you've really hit on what you feel is a great investment, you may be confident in taking money from wherever you can get it. For instance, a home loan is a sensible way to come up with the money if you already have equity in other properties. Otherwise, you can raise money from multiple sources, such as selling stocks and bonds, or cashing out IRAs and other retirement accounts. You could also borrow against or sell your car, life insurance policy, and any other liquid assets.

It will be an easier process once you establish a record of successful real estate deals. In the beginning, it may require some self-sacrifice and ingenuity. But any investment where you come out ahead is a step forward.

Dixie Somers is a freelance writer and blogger for business, home, and family niches. Dixie lives in Phoenix, Arizona, and is the proud mother of three beautiful girls and wife to a wonderful husband. Dixie recommends looking into educational programs like Success Path for more information.
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