Real Estate Financing: Everything You Need to Know
TL;DR - Have funds ready in your account within 90 days of extending an offer, choose from cash, conventional, private, or hard money loans, and prepare documents in advance for potential lenders.
You’ve found your dream property… an ocean view three-bedroom, two-bath condo with a killer kitchen - decked out in granite.
Now that you’re serious about buying your first real estate investment property…
It’s time to get financing.
But how soon do you need the money? What loan options are available to you? And how do you stand out to potential lenders?
Let’s dig in.
Real Estate Financing
A Few Things About Financing
Getting financing for your first real estate property can seem like a daunting task…
But it really isn’t.
There are a ton of options available to you. Whatever your investment strategy is, you’ll be covered.
Borrowing Money
It’s worth noting that most of the wealthy people in the world got wealthy by using other people’s money.
While that may seem crazy, it’s a fact.
Borrowing money allows you to gain leverage and make money where you otherwise couldn’t.
Fund Availability
For lending purposes, it’s a good idea to have funds in your account within 90 days of extending an offer.
But this time period can increase or decrease depending on who you’re working with…
So make sure to check with your lender.
Loan/Financing Options
As mentioned earlier, there are tons of financing options available to real estate investors.
But for the purposes of this article, we’re going to cover the easiest options for new investors.
Option #1 - Cash
If you have significant capital saved up already, you don’t even need to mess with loans!
You can pay the full value of your new property with cash.
And if you don’t have the total amount of cash in your own bank account, you can partner up with other investors as well.
Who doesn’t love no interest payments?
Option #2 - Conventional Bank Loans
This is the most common type of real estate financing.
You work with local banks to obtain the funds for your investment.
Your credit score and credit history play a large part in what rates you get. And you can only have so many of these loans - around 10 at a time.
Expect a 20-30% downpayment.
Option #3 - Private Lenders
These are individual lenders who don’t operate in a normal financial institution, like a bank.
They have a lot of flexibility and choice in deciding to invest in you or not.
If you don’t have good credit or don’t fit the bank’s criteria for a loan, then this is your best bet.
Although, because of the additional risk on their part, you can expect higher interest rates than what a bank would offer.
Option #4 - Hard Money Loans
This is a short-term loan that’s focused on rehabbing and flipping a property as soon as possible.
You can get a hard money loan in as little as a week, but it comes with some drawbacks.
The time you get to pay back this type of loan is a short 6-18 months. And the interest rates can be very high - reaching up to 18%. They can also come with additional fees other than the interest rate.
How Do You Stand Out to Lenders?
So, we’ve gone over the most common methods to finance a real estate investment property.
But how do you stand the best odds to get that loan?
Make a Personal Financial Statement
Making one of these will give you a leg up on everybody else applying for a loan - because not many people go through the effort.
This personal financial statement will go over your assets, monthly income, and any debt you have. Then you’ll sum up your net worth at the bottom.
A potential lender will be able to quickly assess your finances and see that you’re a prepared individual.
Have These Lending Documents Ready
Chances are that most lenders you’ll want to work with will require these documents from you.
2 years of tax documents
W2 paycheck stubs
2 months of bank statements
2 months of brokerage statements
2 months of retirement statements
So have them ready and prepared for when the time comes.
Create a Business Plan
Doing this will show any lender that you have goals, plans, and ideas for your real estate investments.
You aren’t just some willy nilly investor that doesn’t do their due diligence.
Talk about how many properties you plan to own, what renovations you plan to do, what markets you’re researching, and whatever’s important to your real estate investing journey.
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.
