Financing Your First Real Estate Investment
This may sound counterintuitive but investing in real estate for the first time is not dependant on arriving to the table with a fortune in cash. Thanks to a plethora of financial tools available these days, many investors today are able to pick up new properties without investing any personal funds at all. With the opportunity of building a property portfolio on little credit and the almost certain promise of profit, it's no wonder that real estate still presents the most attractive investment vertical for many.
Here are some ways to finance your first foray into real estate:
Hard money loans
Traditional mortgages take around just 60 days to secure at the lowest possible interest rate, but 60 days can feel like an eternity when you're waiting to close on a deal - which is a part of the appeal of a hard money loan.
The flexibility attributed to these types of loans affords the buyer an ability of striking fast, albeit at a higher interest rate. This is a significant advantage in the right scenario and one to be taken seriously as a good bridge if time is pressing. That said, this type of loan is not ideal for the long-term.
An FHA Loan
That first step on the property investment ladder often calls for a leg-up with an FHA loan. A mortgage issued and insured by a Federal Housing Administration lender, the FHA loan is tailored to help low-to-moderate income borrowers.
The down payment and credit rating scores are traditionally lower than a more conventional loan - with the down payment in the region of 3.5%. However this type of loan does not hinder the potential for growth in value or return - as investors in the market for a multi-property can benefit from rental income.
Non-bank mortgage lending
Qualifying for a mortgage requires a hefty amount of bureaucracy which can be an obstacle for borrowers and therefore a barrier for traditional banks looking for more borrowers. Having recently shaken-up the mortgage lending market, non-bank lenders have reduced the bureaucracy, offering another, easier way to borrow.
As a result of this shake-up, the non-bank lenders market has therefore grown, and according to statistics, the market shares could grow to $150 billion by the year 2025, accounting for a 33% annual growth rate.
As of April 2018, non-bank lenders accounted for a staggering 45% of all mortgages
Unlike the big banks, online lenders process applications online within just 30 minutes, processing FICO scores, income returns and tax records at lightening speeds by comparison to the banks, making it possible to close on a property within 2 weeks (compared to 60 days).
Trust deed investing
Trust-deed investments are an established tool. Loans made via trust-deed investments are similar to mortgages, with the exception that, along with the borrower and lender, a third entity, usually an investor is also involved.
In this instance, you are taking a mortgage from a private lender, acting for you as a bank would, by giving them a deed of trust as collateral on the property in question.
This approach is readily used by most real estate investors looking to fund deals with about 8-10% APR, which is quite high, and isn't without its risks .
GPI are available to guide first time investors through the many routes open to them here is Israel and offering a balanced view of both the risks and the opportunities - from the lending stage to receiving the keys to the ideal investment property.