There are many reasons to invest in real estate and go on the lookout for property investment funding. It can be a hedge against market volatility when stocks take a tumble, and there are also many perks associated with owning an investment property.
Becoming a landlord may be a smart way to generate a steady passive income stream, but it does take a certain amount of cash to get started. And when you don’t have a huge bankroll, finding property investment funding may be the only way to seal the deal.
Property investment funding can take several forms, and there are specific criteria that borrowers need to be able to meet. Choosing the wrong kind of loan can impact the success of your investment, so it’s vital to understand the requirements of each kind of loan and how the various alternatives work before approaching a lender.
Conventional Bank Loans
With a conventional loan, your personal credit score and credit history determine your ability to get approved, and what kind of interest rate applies to the mortgage. Lenders also review borrowers’ income and assets. And obviously, borrowers must be able to show that they can afford their existing mortgage and the monthly loan payments on an investment property.
A fix-and-flip loan is a type of short-term loan that allows the borrower to complete renovations so the home can be put back on the market as quickly as possible. Fix-and-flip loans are essentially hard money loans, which means the loan is secured by the property itself. Hard money lenders specialize in these kinds of loans, but certain real estate crowdfunding platforms offer them as well.
Tapping Home Equity
Drawing on your home equity, either through a home equity loan, HELOC, or cash-out refinance, is a third way to secure an investment property for a long-term rental or finance a flip. In most cases, it’s possible to borrow up to 80% of the home’s equity value to use towards the purchase of a second home.
Property investment funding or tackling a house-flipping project are risky ventures, but they offer the potential for a big payoff. Finding the money to take advantage of an investment opportunity doesn’t have to be an obstacle if you know where to look. As you’re comparing different borrowing options, keep in mind what the short and long-term costs are and how that can affect the investment’s bottom line.