Investing in real estate is a well-worn path to growing wealth. Over time, in most locations, real estate tends to go up in value. There’s also a limited supply of land and steady demand for it. Becoming a landlord can be an excellent way for people to earn mostly passive income for decades, and generate wealth for their families for generations to come. All it takes is some understanding. And although the barrier to acquiring real estate is high, there are plenty of ways to finance investment properties.
The first thing is to understand the way real estate works. Investment properties are purchased with the idea that the buyer won’t live in them. They’re a different category entirely from primary residences and vacation homes. It can be harder to find financing for investment properties, at least at first. Banks and other lenders see investment properties as a more significant risk. It can be hard to get a mortgage for one. Investors will need to have excellent credit scores and debt to income ratios to get anywhere with banks.
For investors with less than perfect scores and payment histories, a non-traditional, private lender is one good option. In this kind of arrangement, a loan is advanced to the buyer. They make timed payments at an agreed-upon interest rate. A private lender can foreclose in the same way a standard bank or credit union can.
There’s also seller financing. In this arrangement, the party selling the property advances the money to the new buyer. This type of deal is very atypical because most sellers don’t own their properties free and clear. In general, buyers will be dealing with sellers who have mortgages. Interest rates, monthly payments, and payment schedules are all spelled out in writing with this type of arrangement.
Finally, there are real estate partnerships. These partnerships can have varying structures. Everyone receives benefits according to what they’ve put into the partnership. Some partners want to be very involved, while others prefer being silent. It’s essential to spell out the terms of a partnership carefully and ensure everyone understands what the agreement entitles them to. With a good group, this can be a great way to get started in real estate.