One of the biggest challenges real estate investors face when trying to flip properties is finances. The cost of investing in a property is just as extensive, if not more so than buying your own home. As such, the need for financial assistance is highly likely. There are several avenues you can take to get the money you need to secure a real estate investment. Below, are some of the most common:
One of the best ways to invest in real estate is essentially with your own money. The more money you are able to accumulate on your own the less debt you accumulate. This is also one of the quickest methods to get a property to flip. Those who purchase properties in cash can often get better deals and faster closings which increases their profit. As most people just starting out don’t have that kind of money lying around, however, they often use their own funds and a combination of resources listed below.
Hard Money Loans
Hard money loans are ideal for real estate investors who are looking for a short-term lending opportunity. These loans are popular because they are provided based on the value of the property and not the investor’s credit. Look for a hard money lender in Sacramento and other metropolitan areas that can get you the funds in just 48 hours if approved. The loans are short-term lasting a few months to a year, however, and so are ideal for those flipping properties for a quick sale or those who are in need of funds until they secure more long-term options.
The right partnership can lighten your financial burden while still earning you a sizeable profit. It is ideal to look for someone who has real estate investment experience as well as the capital to bring to the table. You two can negotiate terms with how the partnership will work. In some cases, the partner’s finances are used to fund the project and you’d be responsible for the leg work. However, your partner may be knowledgeable and interested in flipping properties as well. In which case, you’d want to iron out details of who is responsible for what.
If you’re in no rush to secure funds for a real estate investment and you have decent credit, you can look into traditional mortgages. Keep in mind, however, that applying for a mortgage for a home you plan to live in is slightly different than a mortgage for an investment property. For starters, you’ll be required to pay 20% or more as a down payment. You will also be limited to the number of mortgages you can take out for investment properties. So, if you have several properties already under the mortgage contract, it may be hard for you to get approved for another.
Banks and other financial institutions often lend money that doesn’t belong to them but to a government entity. Therefore, they are required to hold borrowers to high standards when it comes to eligibility. As it can be difficult to get a traditional mortgage these days, there is another option you might consider for funding – portfolio lenders.
Portfolio lenders are banks or credit unions that offer funds for investment properties using their own money. This means that they can be a bit looser when it comes to eligibility requirements.
Lease With an Option to Buy
Here’s another concept that can be used to purchase an investment property. When you lease with an option to buy, you’re essentially agreeing to purchase the residence after you’ve rented for a predetermined period of time. You and the current owner go over the purchase price at the time of signing and your rental payments are credited towards your purchase. Since you’ll be flipping the property, you do want to make sure that renovations and repairs are allowed and entered into the contract before you sign.
When you don’t have the cash upfront to cover the cost of purchasing an investment property, there are other solutions like those discussed above that can be used to your advantage. As you decide which route is best for you, just remember to weigh the pros and cons of each and to compare the overall costs to your budget to ensure that you’ll end up turning a profit when it’s renovated and ready to sell.