If you are looking for investment property in real estate, there are several types of these properties on the market that can be a good opportunity for you to create some passive income and let your money work for you. But you know the old saying… “It takes money to make money.” It’s time to explore loans for investment properties.
As an investor in real estate, you may already be working with a substantial amount of money. However, sometimes you need to get a loan to fund the purchase of a potentially lucrative real estate deal. When this happens, what kind of loan should you get? Take a look below for some ideas on the best loans for investment properties to fund your real estate investment.
What Loans for Investment Properties Are Available to Me?
Conventional Financing – One of the most common types of loans for investment properties is the conventional mortgage loan. These loans are not backed by the federal government, but they do follow the lending standards of government-sponsored Fannie Mae or Freddie Mac. Depending on what type of investment property you are purchasing, the down payment can be anywhere from 10% (second home) to 30% (multifamily property).
Your lender will be looking at your personal credit score and history to determine if you should be approved and what interest rate you’ll be charged. Lenders like to see that you have a solid history of paying loan payments on time, a credit score of at least 620, and enough cash in the bank to make mortgage payments on this loan for six months.
Hard Money Real Estate Loans (Bridge Loans) – Lenders of hard money loans are not banks or conventional lending institutions. Instead, these loans are from companies that focus on lending for real estate investment. This loan is often used when purchasing a lower-cost investment property, a property that needs renovation, or a flip property (quick purchase, fix up, and sell).
Hard money loans are usually easier and quicker than conventional loans, they are often short-term (less than three years), and they come with higher interest than conventional mortgages (up to 18%). In the approval process, lenders consider the value of the investment property more than the borrower’s credit score and history. The property itself is used as collateral and can be seized if the borrower/investor doesn’t make their payments.
Home Equity Loans – This type of loan lets investors who already have a home borrow against their existing home equity so they can purchase a second home or income-producing property. After a credit check and appraisal of the investor’s home, they can receive funding for up to 80% of the value of the equity in their existing home.
Like the bridge loan, the investment property is used as collateral and would be seized and sold if the investor didn’t make the payments. If there is still a mortgage on the first home, the interest rates on this second mortgage would most likely be higher. However, the home equity loan is an easy loan to obtain and is popular with flips and long-term income-producing real estate.
Angel Investor Funding – Angel investors are typically not associated with any bank or lending institution. Instead, they are family, colleagues, coworkers, friends, or friends of friends who want to invest in your project in the hopes of receiving a profitable return on their investment. There is usually less red tape associated with these loans, and the terms are often very flexible and negotiable. If the investor can’t continue making payments, the Angel investors will seize the property.
Fix and Flip Loans – As the name indicates, this loan is used to fix up a property and flip it quickly to avoid making any payments that would include costly added interest. It is a short-term, hard money loan, and the investment property is the collateral. Fix and flip loans are relatively easy to qualify for and obtain, and the lender pays more attention to the profit from the investment property than the borrower’s credit history. Interest rates for these types of loans are generally higher than a conventional loan.
There can be profit to be made in investment real estate properties, but they also carry a certain amount of risk. If you are considering getting a loan for this type of investment, you might want to start small on your first one and grow from there. One of these loans listed above should accommodate your needs so you can profit from your investment property.
Let Affinity Beyond Capital (ABC) guide you through the process of obtaining a loan for the investment property you are wanting to purchase. Our team of experienced professionals will evaluate the property and match you up with the perfect investment property loan so you can start making a profit quickly. Call us today at 833-234-6489.