Investing in property can help you generate an ongoing, passive, and steady income. Plus, it is also a worthwhile long-term investment, assuming its value increases over time. Therefore, many investors decide to purchase investment properties as part of their wealth-generating strategies. Sounds great, right?
If you’ve decided that investing in property is right for you, the next step is to choose the best way to finance it. There are many different types of property loans available. Here are some of the most popular choices and what you need to know about each of them.
You can obtain hard money loans from companies (or individuals) that are in the business of lending money specifically for investing in properties. Typically, they don’t analyze your credit score when making a lending decision—they look at the investment property’s value instead.
Although hard money loans are quicker to acquire than conventional loans (and have fewer requirements to qualify), they often have higher interest rates and shorter terms. They are best for investors looking to purchase properties to renovate and sell within a quick time frame.
This is the most common type of investment property loan out there. While the processes for securing this type of financing can vary from state to state, most lenders require a 20% down payment, a decent credit score, and the ability to afford your other mortgages still (if you have them).
If you are interested in keeping your investment property within your portfolio for the long haul (and you meet the qualifications), conventional loans can be a great choice to consider for financing.
This loan allows you to use the equity you have in your current home for your property investments. The process for obtaining home equity loans is more straightforward than other forms of financing, and the interest you pay on them is tax-deductible. Lenders will check your credit and appraise the value of your current home to decide whether you qualify for a home equity loan.
These loans have higher interest rates than first mortgages. However, they are a sensible choice for either a long-term investment property or a quick flip, presuming you will have the income coming in that you need to repay it. Rental management companies can be beneficial in helping you keep your investment properties occupied.
Private money lenders are people looking to make investments with their own money. They can be other property investors, or individuals you know personally like family, coworkers, or friends.
Private money loans’ terms are often negotiable, and they can come with lower interest rates. However, these lenders can still foreclose on your investment property if you don’t pay it off in time. This type of property loan is a good option for investors that may have been previously turned down by banks.
As you compare these different types of loans, it is always wise to analyze their fees, terms, and interest rates when making your choice. Securing the right financing for your investment properties can be instrumental in your overall success.