Real estate is among the best industries an individual can choose as an investment in the modern-day business world. The investment comes at a price due to its lucrative nature; hence one of the critical decisions entails financing. The different methods that a real estate investor chooses to have a significant impact on the investment outcome.
There are several real estate financing options available to the investors depending on the nature of the investment they want. These financing options have varying advantages and disadvantages, and the investors need to settle for an option that supports their investment strategies. Some of these real estate financing options include the following:
Cash financing helps the investor to cut on the high interests and increase their savings. Making cash payments is much more convenient as it hastens the process of owning the property on the buyer’s part. It is one of the most popular financing methods to get an offer to be accepted and increase investor’s interests.
This mortgage financing needs at least 20 percent as a down payment, though the figure may rise by an additional 10 percent for the investment properties. The majority of homeowners prefer this mortgage option as it has lower interest rates. Since the homeowners partly finance this investment with their cash, they get much better returns.
Private Money Lenders
The private money lenders help finance new homeowners with capital as they venture into the industry. The investors benefit from interests during the payback period, which lasts between 6 months and a year.
Hard Money Lenders
This financing option provides loans in short term to the investors in real estate. The investment value of the property is used when determining the financing option. Hard money lenders only cover a given percentage of the property purchase price.
This financing method is meant for those individuals who want to live in the houses they are purchasing. It has down payments that are low compared to other ways, though it requires private mortgage insurance (PMI). This financing method gives the homeowner the benefit of having duplex or triplex units on the same loan.
Seller financing allows the home buyer to purchase the property directly from the homeowner. The buyer pays for the property without the help of banks eliminating any hurdles that may hinder funding access. This process is much faster for both the buyer and seller and eliminates additional costs and transaction fees.