Becoming a real estate investor is a great way to earn a lot of money with minimal effort, depending on if you have the right information and the right help.
Whether you want to rent out a single home or learn how to buy multiple rental properties, the process can seem daunting. If you’re wondering where to start, don’t worry because we’ve narrowed the information down to the essentials.
Keep reading to learn about 8 property finance tips to purchase your investment property.
1. Assess Your Credit Score
If you have a pristine credit score then you’re already off to a wonderful start, but you’ll want to maintain it as you move forward.
Your credit score is the main factor banks will take into consideration when creating the terms of your loan. A high score will translate to lower interest rates. If you have a low score you can still get the loans you need but you will either be forced to pay higher interest rates or an upfront fee.
There are several things you can do to raise your credit score or keep it in the green if it’s already there, including paying your bills in a timely fashion and diversifying your credit. Additionally, you shouldn’t close your old credit cards or open too many new ones in a short span of time.
2. The Bigger Your Down Payment, The Better
Borrowing money to invest is a common strategy and unless you’re a millionaire you’ll want to do the same.
If you do decide to go the route of a conventional bank loan, you should keep in mind that a down payment is often required. The rule of thumb is that the bigger your down payment, the better because it will keep your interest rates low.
Keep in mind that most banks will ask for 20 percent or more of your property’s value if you’re just beginning as a real estate investor.
3. Consult Local Banks
Whether 20 percent of your property’s value is a problem or you simply can’t afford a big down payment, you should look into local banks as a possibility for getting the loans you need.
Not only are they more likely to be flexible with their terms but they should have more familiarity with the local market. If they have a vested interest in the same market you’re going to work in, then you could end up with a better deal overall.
4. The Question is, How Many Mortgages Can You Have?
If you’re asking yourself, “Can an LLC get a mortgage?” the answer is yes, but it might not be your best option. While a mortgage for an LLC rental property is possible, it can be tricky to obtain, particularly if you’re self-employed.
Not to mention, it is likely that the mortgage will be listed on your credit report. Not only can multiple mortgages wreak havoc on your credit score but most lenders put the cap on 4 mortgages total.
Thankfully, there are other options, such as making use of your home equity.
5. Use Your Equity to Finance Your Investment
If you don’t want to take on multiple mortgages, then perhaps taking advantage of your home equity is the right option for you. There’s the possibility that you could get up to 80 percent of your home’s equity value which can be used toward your real estate investment opportunity.
A cash-out refinance allows for a fixed rate of payment but a potential repercussion is that your mortgage may be extended, which could mean more money paid to the home attached to that mortgage. This option might only be worth it if you expect high future profits.
On the other hand, going with a home equity line of credit (HELOC) can be a good or bad idea depending on the exact nature of the loan. If you are looking for a loan with only interest payments, then consider getting a HELOC in which you borrow against your home’s equity.
6. Consider a Fix-and-Flip Loan
If you plan on selling your real estate after you’ve renovated it, then a fix-and-flip loan might be the best option for you. It will allow you to receive hard money in order to complete whatever renovations are necessary and then you can get the lump sum of the profits after you’ve sold the investment.
What might pose a problem to your wallet is the fact that these kinds of loans often have high-interest rates and a brief payback timeframe. It’s best to talk with lenders so that you can hash out the best deal.
7. Think Outside the Box
You shouldn’t be limited to the usual bank loans. Rather, depending on your situation, you might want to consider different options altogether, such as private or personal loans.
If the potential profit from your real estate investment is as certain as certain can be in this business, then you should consider all your options and beyond. One option is peer-to-peer lending on sites like Upstart.
8. Get Your Documents Together
You will need to get together your paperwork because all reputable lenders are going to need proof of your actual financial situation, rather than simply taking your word for it. This means that you’ll need bank statements that go two months back or more, along with a couple of recent pay stubs, your Social Security card, your driver’s license, and other relevant documentation.
You may need one or two pieces of paperwork required by a specific lender, but preparing everything ahead of time will allow for the process to be streamlined once it begins.
If you’re your own boss, then keep in mind that you’ll need an official letter from your certified public accountant that indicates at least two years of self-employment.
Ready to Begin Making Money through Property Finance?
Now that you know about the 8 best property finance tips, you can start purchasing your investment property.
Want the pros to handle the nitty-gritty on your behalf? Bergan & Company has the experience and know-how to handle all of your property finance management needs. Contact us to learn more about our excellent services.
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