Investing in real estate is the surest path to building long-lasting wealth, multiple streams of income, and comfortable, early retirement. In fact, experts say that real estate has made more millionaires than any other asset class.
And to the surprise of many, buying property is easier than most people think. The good news is that you don’t need to be rich to buy an investment property.
There are many different loans for investment properties that allow you to leverage your investments. In no other industry will banks lend you money to make an investment.
Wondering how to get an investment loan, so you can use other people’s money to build up your real estate portfolio? Keep reading below to find out now.
Get Your Ducks in a Row
Before you go out looking for an investment loan, your personal financial situation needs to be in order. What are the most important factors?
Your credit score, your current debt, your income, and the amount of money in your bank account.
Your credit score is the most important factor that determines your ability to get a loan. You can have a high income and no debt, but if you have a bad score, you’ll be considered a high-risk borrower.
Take a few months to focus on boosting your score as much as possible. Look over your report to find and fix any errors. Pay down any consumer debt you may have to improve your debt to income ratio (DTI).
And consider opening other loans, like credit cards, without holding a balance.
Just like getting a mortgage for your primary residence, you’ll need to have a consistent stream of income. Lenders will want to see your current job on at least the last two tax returns. So don’t change jobs or industries before you plan on getting an investment loan.
Lastly, have as much money in the bank as possible. You need cash to cover a down payment, closing costs, and cash reserves for your investment property.
Look for Houses that Qualify for Rental Loans
When buying a rental property, it will need to meet a certain set of standards to qualify for a mortgage. Unfortunately, you won’t be able to buy run-down houses.
Lenders don’t want to put money on a high-risk house. They want you to buy a house that is in decent condition, that is liveable, and that doesn’t require too many big upgrades.
As an investor, you need to walk the balance of finding a decent home in a desirable neighborhood for the lowest possible price. It’s hard for investors to obtain positive monthly cash flow if they are paying retail prices for a home.
Work with an experienced real estate agent to increase your chances of finding a good deal, also take some time to learn how to make money wholesaling real estate.
In many cities, there are real estate companies that specialize in selling properties to investors. View this site for more info on the Austin area, one of the best opportunities for investors in the US.
Choosing Loans for Investment Properties
Next up, it’s time to choose your financing strategy. There are numerous paths that new real estate investors can take, each with its pros and cons.
Here are some of the most common ways investors can start investing in land and homes.
The most popular strategy for financing rental properties is conventional mortgages. However, it’s one of the most strict and may be difficult for new investors to qualify for.
When using a conventional loan, you’ll need to put down at least 20% on an investment property. And you’ll need cash on hand for closing costs and enough money to cover six months of expenses on the home.
The good news is that interest rates on conventional loans are usually the lowest, so it’s a great long-term strategy if you can afford it upfront.
FHA or VA Loans
Looking to buy a property with less money down? Conventional programs, like FHA loans or VA loans, offer a solution if you qualify.
FHA loans allow you to put down as little as 3.5%. However, they can only be used for primary residences.
To use this loan, you could buy a multifamily property, up to four units, and live in one while renting out the others. After at least a year, you can move out of the property, leaving the original loan in place.
Or, if you have military service, you may qualify for a VA loan. This lets you get into a home for 0% down. However, the same rules apply. This is for primary residences only, so plan to buy a multifamily property.
Hard Money Loans
Hard money loans are short-term loans with high-interest rates. You can use them to get fast cash to buy a fix and flip property. They are not designed for long-term rentals.
For the most part, these loans are good for up to 12 months.
Can’t qualify for a conventional loan? You may need to look to private lenders. These can be friends, colleagues, family members, or other investors.
Everyone is looking for investment opportunities to help them beat the low stock market rates and the paltry rates offered by banks.
By providing someone with a good interest rate, secured by physical property, raising private money isn’t as hard as you might think.
There are many lenders that specialize in non-conventional, or non-qualifying (non-QM) mortgages.
These are primarily designed for self-employed borrowers, business owners, or others who have difficulties documenting their income through their tax returns.
With these loans, you can get approved by showing how much you make in your bank statements. Interest rates will be higher, but down payment requirements are often flexible.
There’s Always a Way
As you can see, there are many different loans for investment properties available. If you are committed to building a real estate portfolio, there will always be options available to you.
You just have to be willing to look, pivot, and put yourself out there.
Looking for other tips on investing in real estate? Head over to our blog now to keep reading.