5 Tried-and-True Ways To Finance Your First Real Estate Investment
As Mark Twain advised, “buy land, they’re not making it anymore.” Real estate investing can be an excellent way to build your fortune. The hitch is how to finance that first purchase. It’s always better to use someone else’s money, but if you are new to real estate investing, you may not know how.
Whichever financing option you choose, you want to have your financing in place before you begin looking for properties. Having financing first lets you know what size of deals you can afford, but it also means that when you do find that perfect deal, you can move rapidly. Speed is critical to investing in real estate; having your financing gives you that speed advantage.
Traditional loans, not surprisingly, come from banks and other institutional lenders. These loans may have the lowest interest rates but will take the longest to get. The application process will be rigorous, and you’ll need a credit score of at least 600+ and a downpayment of 5 to 20 percent.
Private Money Lenders
Private money lenders are business people you work with that have extra funds they will loan you. Anyone you know who is rich and willing to share can be a private money lender. Their rates are much higher than those of a traditional bank, but they can be better for investors because of the ability to act quickly.
Hard Money Lenders
Hard money lenders aren’t banks but are licensed to lend money to investors. They provide short-term, high-interest loans with significant fees that allow residential redevelopers to purchase properties quickly and will have relatively little pain. Like private money lenders, they will have significantly higher rates but offer agility that can be vital to the real estate investor. They usually have money in their hands within days instead of months.
Seller financing allows the owner to be your bank, lending the money on their terms. Instead of making payments to a lender, you make payments to the seller under the terms you agree upon. Sellers, in fact, are often the easiest lenders to bargain with, so it’s always worth trying to see what’s available.
Get Some Help
Financing that first investment property can be intimidating. Start by learning what’s available in the way of financing. Check with your local bank, or contact a bank that specializes in commercial real estate, like Sunwest Bank.
Sometimes consulting with an expert can mean the difference between a closed deal and a deal that slips through your hands.