Real estate is an attractive way to invest: there are many ways to generate a return, plus the principal is well-protected because real estate often retains its value. But real estate can also be priced out-of-reach for some investors. If you are looking to invest in real estate and need to finance it, make sure you follow these 4 tips for financing your investment property in …
Investment Property Financing Tip #1
Interest rates are the bank’s way of making money on the money they lend you. Although interest rates are expressed as a percentage, it will ultimately add up each and every month that you need to pay off that loan! Even a small increase in the interest rate, from 3% to 4%, for example, could mean thousands of extra dollars that you’ll pay over time.
Each bank sets its interest rate based on a number of factors — some of which are outside of the banks control but some of which are entirely in the bank’s control. If you want to borrow money from a bank, you’ll need to pay interest but you may be able to adjust the interest rate you pay based on certain factors, including your credit score and the amount of money you can use as a down payment. When the bank tells you what their interest rate is, ask them how you can lower that amount.
Investment Property Financing Tip #2
Banks are businesses and YOU are their customer. That means banks compete with each other for your business. So find a bank that is willing to work with you on your investment property financing. A bank might offer you an attractive interest rate if you do business with them.
You might also find that larger banks see you as “just another customer” while smaller banks might be willing to give you better financing terms because they want your business.
Investment Property Financing Tip #3
Pay attention to terms! Terms are important but many people overlook them. The terms include anything related to the financing contact. One thing you should be aware of, especially if you are getting a loan from a traditional bank or finance company, is a low interest during a promotional period that then converts to a higher interest amount afterward. If you are buying a house to fix and sell, you might be able to sell your property before the lower interest term expires, allowing you to borrow for less; but if you hold an investment for a period of time and the interest rate balloons then you need to factor that price change into your profit expectations.
Investment Property Financing Tip #4
Be aware that property financing is not just done through large banks. There are other ways to finance your property, including seller financing, partnering, and even paying for your investment property with your IRA or 401(k). So you have plenty of financing options if you are not ready to buy the property with cash.
Use these 4 tips for financing your investment property in and you’ll be able to acquire more properties and build your investment portfolio faster.
At House Hub Real Estate Investments, we help investors acquire investment properties with cash, with financing, and in many creative ways, including inside your IRA. If you’re thinking about investing, talk to us about how you can acquire your next real estate investment. Click here and enter your information or pick up the phone and call us at 864-272-5400.