During the height of the economic crisis, a lot of people were hesitant to invest in real estate as a result of the housing meltdown. Fortunately, this stage has passed and the industry seems to be making a comeback. Today, you can easily buy in a down market and make a huge profit. But of course, you need to do your research depending on the type of investment you’re planning to make.
A good rule of thumb to follow before investing in real estate is that you should have an excellent credit rating, and you should feel financially secure. This way, even if you unfortunately experience some downsides to your investment, it wouldn’t have that much of an effect in your life. The upside is that you’ll earn a significant profit; you’ll consider real estate investment as a lucrative main or side business venture.
Now, the one problem you’d have when dabbling in property investing is where you’ll get the funds you need. How are you supposed to finance your real estate investing venture? Here are the top five ways on how you can do just that:
1: The Traditional Way
You need to have a solid credit rating and be financially stable before trying to invest in properties. The traditional way to finance real estate investments is to borrow money from banks, credit unions, home mortgage companies, and other financial institutions. Most of these have a high credit score requirement. You also need to provide a full documentation of your income and debts, and you need to shell out at least a 10% down payment. Overall, this is one of the safest and most well-known methods of financing real estate investments.
2. The Lease Option
An unfamiliar yet still suitable form of financing investment properties is the lease option. It allows you to own property for little or even no down payment. Within two or three years, you can be given the right to purchase the property while you’re still looking for financial backing. It can also be arranged that a percentage of the monthly lease payment goes towards the balance of the cost of the property.
3. Through Seller Carry Back
Also called buying on terms or creative financing, seller carry back refers to any method of financing aside from the traditional one. This is a good way for investors to use as little of their own money as possible, where sellers usually agree to carry the note of your purchase.
4. The Seller Second
For this, the seller provides a second mortgage and cash flow notes are usually involved. For example, if you’re pre-qualified for a loan which requires you to shell out 20% down payment, an offer can be made so that the seller can carry a cash flow note for 20%. The one thing you need to check when going for this option is that the loan you’re qualified for should allow a second mortgage attachment. Although there are some loans where this is a possibility, seller seconds are not allowed in most cases.
5. Using the Subject-To Method
Finally, you can go for the subject-to method which is a short-term solution for real estate financing. It means that the investment is subject to existing financing. When you purchase a property, one condition is that the existing financing stays in place. The title can be transferred but the loan will still be under the seller’s name, although the buyer is already making the payments. This financing is suitable for properties that are about to be foreclosed.