The real estate industry is one of the fastest growing economic sectors in the country, and one that offers numerous opportunities to make a living. After the housing crisis in 2008 and 2009, this real estate industry has continued to show solid growth and stability. One of the most exciting aspects of this multi-faceted industry is that there is a self-employment option that allows you to engage in several different business strategies. From purchasing rentals, doing simple short-term flipping, or long term renovations there are several different ways to be successful in real estate.
Unfortunately, a large amount of upfront capital is needed for virtually every real estate business idea. Both land and housing are not cheap, especially if you follow the tried and true maxim of the real estate industry: “location is everything”. Unless you are sitting on a six or seven figure trust fund that your grandparents left you, chances are that you will need to find funding options to begin any potentially profitable real estate venture. Below, we look at the top ways to obtain funding or financing for your real estate business vision.
When most people need a sizeable loan, the first thing that comes to mind is calling up your local bank to set up an appointment with a loan advisor. Unfortunately, many banks consider real estate investments as riskier lending options than the more traditional home loans. However, over one third of all properties sold in the US last year were for investment purposes. This increase in real estate investing has led many banks into making it easier to qualify for a real estate investment loan.
To qualify for a real estate investment loan from a bank, you will most likely have to have a credit score above 700 and have enough liquidity to put down 20 to 25% down payment. This large down payment should significantly lower your interest rate. You will want to make sure that you still have cash left over to invest in the immediate repairs needed to the property, which will help to raise its value. Additionally, many banks may require you to show proof of having at least six months of income in your savings accounts to cover first loan payments.
The main benefit of bank loans for real estate ventures is that you should be able to get flexible loan terms and a relatively low interest rate. If you are looking to flip the property, the low monthly payment will allow you to save money on payments while trying to sell the property. If the property you purchase is for a long-term investment, you can negotiate with the bank a long-term repayment plan, which will allow you to pay off the loan over several years as the property increases in value.
Hard Money Loans
Imagine that you found a super bargain on a house in a high-equity neighborhood offered by a motivated seller who urgently needed the case from the sale. If you were able to purchase the home, you feel that you could relist it for almost double the price. Applying for a loan would take a minimum of several days, and by that time, the seller may have found another buyer. Hard money loans have the advantage of getting you the capital you need quickly.
While they do come with a relatively short loan period (12 to 36 months) and high interest rates (15 to 20% is normal), they can be extremely helpful if you find yourself in a win-win situation where you need to get access to capital quickly and feel that you can flip the property in a determined amount of time. There are several online brokers offering hard money loans such as this one.
Private Real Estate Funding
If you are having a hard time getting financing from banks, there are also several different private real estate funding agencies and individuals that you can approach. Lending One is one company that offers very competitive interest rates as low as 7.49% for fix and flip properties. Additionally, the loan application process for private lenders is usually much simpler than what banks ask for, and are usually less strict when it comes to credit scores.
Other online lending platforms such as Prosper and Lending Tree allow you to try to “sell” your real estate investment venture to private lenders who will “bid” on your loan. This can help you get several different quotes from individual private lenders to find the best terms and rate for your real estate business.
Expanding into Other Countries
Once your real estate venture business is up and running, you might want to consider expanding your business into other countries. The real estate industry on a global scale generated over 3 trillion dollars in 2014, and is expected to continue to exert influence over global economics. Unless you dominate a second language other than language, investing in real estate in other English-speaking countries is probably the safest best.
One loan broker in the UK offers secured and unsecured loans for your investments on the other side of the pond. This loan broker in Australia has some great resources to help you expand your real estate venture in the land down under. Lastly, this loan broker in South Africa can also help you get access to financing in three days or less.
Author Bio: Tom Smallwood is a former accountant turned online investment and finance blogger. He is currently a full time blogger and is working on his first book. Together with his family he has managed several rental properties in the South East for the past 10 years.
If you liked this article, subscribe to Rentometer's email newsletter to stay up-to-date on the latest trends in rental housing.