Investing in property will help you produce a steady, passive, and continuous income. It is also a profitable long-term investment, given that its value increases over time. Therefore, as part of their wealth-generating techniques, a lot of investors buy investment properties. Sounds nice, doesn’t it?
If you’ve decided it’s right for you to invest in property, the next step is to choose the best way to fund it. There are several different types of loans available for properties. Here are some of the best-known options and what you need to know about them.
Hard Money Loans:
You may get hard money loans from companies (or individuals) who are in the business of lending money directly for property investment. Usually, when making a lending decision, they don’t evaluate the credit score – rather, they look at the valuation of the investment property.
Although hard-money loans are quicker to obtain than traditional loans (and have less qualification requirements), they also have higher interest rates and shorter terms. They are ideally suited to buyers looking to buy property that can be restored and sold within a short time frame.
Conventional Mortgage Loans:
This is the most popular form of real estate investment loan out there. Although the procedures for securing this form of financing vary from state to state, most lenders need a 20 percent down payment, a reasonable credit score and the ability to still afford your other mortgages (if you have them).
If you are interested in keeping your investment property for the long haul (and you meet the qualifications) within your portfolio, traditional loans could be a great option to consider for funding.
Home Equity Loans:
This loan helps you to use the equity you have for your real estate investments in your current home. The method to receive home equity loans is easier than other sources of financing, and the interest you pay on them is tax-deductible. Lenders must review your credit history and check your existing home value to decide if you are eligible for a home equity loan.
These loans have interest rates higher than first mortgages. They are, however, a good option for either a long-term investment property or a fast flip, presuming you’ll get the income you need to repay it. Rental management companies can be effective in keeping the investment assets occupied.
Private Loans on Money:
Private money lenders are people with their own money looking to make investments. They can be other property owners, or people you know personally, like relatives, employers, or friends.
The terms of private money loans are always negotiable, and lower interest rates will come along with them. But, if you don’t pay it back on time, those lenders will also foreclose on your investment property. This form of property loan is a good choice for investors which banks might have previously declined.
As you compare these different types of loans, when making your choice it is always wise to analyze fees, terms and interest rates. Your overall success will be instrumental in finding the right funding for your investment assets.