Investment property loans are a highly debated topic in the real estate investment industry. Many wonder whether or not it is a good idea to put yourself in debt with the intention of making future profit.
Like with anything else in business, getting an investment property loan is a gamble. What you need to think about is whether this is a gamble worth taking.
Traditional Investment Property Loans
Using traditional investment property loans can be a good idea for many people who are seeking to begin investing. If you have a down payment, it is a good idea to start looking at investment property mortgage rates. The reality is that most people don’t have a few hundred thousand dollars to buy a second property with. This usually means that investment property loans are necessary.
There are, however, some downsides to using traditional mortgage lenders. The biggest downside is the commitment to the investment property loans. When you are dealing with a bank, you have no choice but to pay. If you miss even a few payments, you can be in some serious financial turmoil.
There are some remedies for these dangers, however. The best remedy for this issue is to use a rental property calculator before buying a property. A rental property calculator can let you know if the rental income you make from the property will be enough to sustain a loan. Having all your calculations in order before taking out any investment property loans will cut the risk dramatically.
Related: All You Need to Know About a Mortgage for Rental Property
An Alternative to Traditional Mortgage Lenders
Hard Money Loans:
These types of loans are often used by real estate investors when they lack a small amount of funding. Hard money loans, otherwise known as private money loans, are short-term loans taken from private lenders. These lenders only offer loans specifically for real estate investing purposes. These loans are paid off in 1-3 years and often have a high interest rate. Private money loans are a pro if you only need a small amount of money to complete a purchase. These loans are small in size and will usually not go high up into hundreds of thousands of dollars. The pro to these types of loans is there is more leeway when paying back the loan as it is based on a personal relationship to some extent. However, the downside is the very high interest rates to these investment property loans.
Private Relationship Based Loans:
When you are looking for investment property loans, try looking near rather than far. Many beginner real estate investors turn to their friends and family for investment property loans. Investment property financing doesn’t have to be difficult. It could be as easy as asking your parents for a loan.
However, there are some downsides to these types of investment property loans. Not being able to pay back the loan in time may result in the disruption of personal relationships for a long time. On the plus side, however, personal relationships give you flexibility with payment plans to some degree as well.
Find a Partner:
Instead of actually borrowing money from someone to start real estate investing, try looking for a business partner. Having a partner means that investment property financing will be a lot easier. When two or more people are putting their money together, it could eliminate the need for a loan completely. The key here is to partner up with someone you trust and to have everything in writing. Keep in mind that the rental income and return on investment will be split between you and your partner. While this may seem like a downside, it is actually a positive. If a loss were ever to happen, it will also be split and not just be on your shoulders.
Related: Buying an Investment Property: Cash or Mortgage?
An Alternative to Buying/ Taking Out an Investment Property Loan
There are endless possibilities when it comes to real estate investing. To be successful in this field, you have to think outside the box and have creative real estate investing strategies. Instead of putting yourself in debt to get a second home for real estate investing, use what you already have. Rent out rooms in your own home and build up some savings before you try out the big leagues. Another option for you is to invest in real estate investment trusts. These REITs are a great way to get a foot in with the industry when you only have a small amount of money to invest with.
Related: Creative Real Estate Investment Strategies You Need to Try in 2018
Remember to utilize all the investment property analysis tools out there when buying real estate. These tools will help you understand exactly how taking out an investment property loan will play out. Calculations are key when it comes to the buying process. Be sure to check out the investment property calculator provided by Mashvisor, as well as the other helpful tools and tips.
To learn more about how Mashvisor will help you make faster and smarter real estate investment decisions, click here.