Real Estate Investment: Financing Your Investment

Financing Your Investment Property

Are you thinking of calling your traditional mortgage lender to finance a property that you want to fix and flip? Please don't call them just yet.

You may be surprised to learn that the financing process for investment properties can be totally different than a traditional home sale.

Many traditional mortgage lenders don't provide loans for fix-and-flip projects. It's a ton of liability for their company because these homes generally have safety or health issues. Most lenders would really love to lend on a move-in-ready home that may just need a few cosmetic updates; a house that's in bad shape and ugly, not so much.

So who do you call to gain access to funding if you don't have the cash sitting in your account? There are a few options, depending on your investing goals.

• Hard money lenders can help you at a cost because they're willing to take on the risk of the home. They're generally a group of people that will help fund your project at a higher interest rate and can close a transaction much faster than dealing with a bank, which puts you in a much stronger negotiating position for the property.
• For many people, owner occupancy is a great way to get started. With this process, you'll occupy one unit of the multi-unit property and rent out the others. This route could lead to a more traditional lending process.
• Another occupancy option is the 203K or rehab loan. You can't use this as a straight flip or investment, but provided you occupy the home as your primary residence for a certain time period, you'll be able to finance the repair costs into your mortgage, saving you cash out-of-pocket up front.
• Utilizing home equity or retirement funds can be a way to make that down payment or pay for initial repairs. You can talk to your bank about taking out a home equity loan or running a cash-out refinance to take advantage of the equity you've already built in real estate.
• Maybe you can find a partner to go into this project with. It will reduce costs and allow you to get started even if you aren't cash-heavy. Just make sure you have all agreements in writing before getting started.

Investing in real estate can be overwhelming, but you don't have to let it scare you. Depending on your situation, there may be a great way to get started on financing your journey. Let's talk soon.