Investment in real estate has its roots far back to when cavemen set up boundaries of their spaces. Conceptually, real estate investment is all about making an enormous return at the end of the day. Whether you intend to invest as a landlord, flipper or simply a home owner, the bottom line is always getting the best deal. Here are five foolproof ways to finance your first real estate investment.
Taking a loan on a property is an age-old financing method. The requirements are an impeccable credit record and high credit scores. According to Rusty Tweed, A property finance consultant, mortgage approach requires a down payment which starts from anywhere between 20%-25% for durations between 15-30 years at the prevailing interest rates. The mortgage is ideal when there are low-interest rates. The only catch is that most institutions will foreclose on the property when an individual reneges on repayment.
Current trends of property purchasing indicate an increase in cash buyers. Cash is perhaps the most convenient and fast way to acquire property. Paying up front entitles you to benefits such as being considered first in a prime property that is in high demand, negotiating the price downwards and fast transfer of titles. Paying in cash is simple and any sellers’ most preferred mode of selling a property.
Seller carry back
Here the seller agrees to pick up the purchase note on behalf of the buyer. The agreed upon purchase price is then paid through monthly or quarterly installments. The seller remains the owner of the property. The title of ownership will be transferred upon completion of repayment. The seller also sets the repayment duration usually anything between 1-2 years. The other end of the bargain is that the buyer may end up paying much more for the property than market rates or mortgage rates.
Savvy investors love this method of financing a property. “Subject to” means that the sale is subject to existing terms of financing, therefore any changes invalidate and automatically cancels the sales agreement. The seller takes up a loan amount equivalent to the purchase price. The buyer then repays the loan on behalf of the seller through agreed upon installments. This approach is a short-term financing strategy since the seller doesn’t want to be encumbered for long.
Leasing is synonymous to renting; however, it is a multifaceted approach. Leasing allows the lessor/buyer to purchase the property somewhere along the line. The investor enters into a rental agreement with the seller, whereby, the repayments are split into two; one part caters for the leasing amount while the other part goes towards the purchase and subsequent ownership. No deposit is required for this option.
As a real estate novice, it’s your duty to research on the best methods of financing that meets your investing needs. There are much more ways of funding not tackled here that can be found in Nolo.com. These five funding options have barely scratched the subject on financing. Owning a property is no longer about a lofty dream but an achievable reality; take the first step to owning a property.