Do you plan on investing in real estate soon? Good for you! As they say, buying one is generally a good investment. Why? Real estate can increase in value over time, and it can generate an on-going passive income if you turn it into an investment property.
However, buying a real estate property can be pretty expensive. How can you purchase an investment property if your savings are not enough to cover the expenses?
Luckily, different property financing options are available to help small business owners like you buy an investment property. Some of these are as follows.
FHA Mortgage
FHA Loans Midland Texas can help you finance your first investment property purchase. The FHA allows real estate investors like you to pay 3.5% down payment up to a 4-unit home, with the condition that you’ll be living in one of the units. The reason is that for a property to be FHA-eligible, it must be an owner-occupied property. Most lenders require at least 500 credit score, which is a 100 points lower than other mortgage loans.
Home Equity Loan
This is another good financing option when buying investment properties since you can enjoy up to 80% home equity value. You’ll need to use your existing property as collateral for the loan, and you can cash out a significant amount of cash that you can use to buy a real estate. However, since your home is at stake, one needs to make sure you can keep up with your mortgage obligations to avoid foreclosure.
Real Estate Partnerships
Another real estate investor might be willing to buy an investment property with you. This is a good idea only if you lay out the terms thoroughly and managed the expenses and revenues accordingly. You get to divide the risks, bring in more resources, expand your network, and split accountability as well as tasks. On the downside, dealing with taxes and controlling the business can be trickier. You get less profit since you need to split the revenue with your partner. Weigh in the pros and cons before jumping on investment partner financing.
Good Read: The Pros and Cons of Investing in Real Estate with a Partner
Seller Financing
When it comes to seller financing, the real estates’ seller is the one who will finance the purchase. Both parties will to agree on the terms, monthly payments, and schedule, interest rates, etc. as well as the consequences in case you fail to pay them on time. For this type of financing option to become successful, you’ll need to make sure the seller is the real owner of the property, and the real estate has no existing mortgage commitments.
Mortgage Transfer
While this financing option is less common, there still exists some properties for sale wherein you can assume the seller’s mortgage at the rate they are paying. Check if the investment property has a due-on-sale clause. This clause will oblige the new property owner to pay the full remaining amount in full. You’d want to take over the same mortgage payments as your seller had instead of having to pay the total amount upon transfer.
Good Read: Can You Transfer a Mortgage?
This list entails five common financing options for anyone who wishes to buy an investment property. Compare the pros and cons before choosing one to make the most out of your investment.
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