If you’re looking for a way to diversify your portfolio, real estate should be at the top of your list. Buying real estate has tax benefits, increases your cash flow, and is a great way to build your wealth.
For many people, the only thing standing in their way is real estate financing.
It can seem like a confusing world to navigate, but there are a lot of options at your fingertips. Here’s how you can get financing to sign your name on the dotted line.
1. Know Your Numbers
Before you can figure out which financing route is best for you, you need to take a look at your current financial situation.
Understand your credit score and search for any way it can be improved. Analyze your budget to see how much you can afford per month. How much money do you need to make off of the rental property to afford the mortgage? How much to turn a profit?
Different goals will change your answer to this question. Someone who flips houses, for example, can’t expect a renter to immediately move in and start providing cash flow.
Have your goal in mind and know how much money you need before making any decisions.
2. Save For A Down Payment
While there are ways to finance a real estate purchase with little to no money down, odds are you’ll need some cash on hand to seal the deal.
You don’t need to have a lot — which is where financing comes in — but it’s very difficult to find a situation where you can purchase a house with less than 20% down.
3. Choose A Real Estate Financing Method
The most common method of real estate financing is a traditional mortgage. Many investors put down the traditional 20% and expect rent to either meet or exceed the monthly mortgage payment.
Pro tip — this usually offers the lowest interest rate.
If you’re not interested in this type of financing, however, there are several other options available:
FHA loans are run through the United States government. The catch of this option is that the loans are only meant for people who are going to live in the home they’re buying.
However, if your plan is to buy a duplex or triplex and then live in one of the units, you could be eligible for this type of loan.
If you can’t qualify for a traditional mortgage with a bank or credit union, try to find a portfolio lender. This is a bank or lender that covers real estate financing with their own funds, which means they have more flexibility when it comes to terms.
Of course, you can also always find money from private business or individuals. This isn’t necessarily the best option, though, so proceed with caution if you choose this route!
While you can get the money in just days in some cases, interest rates can rocket sky high and the full amount is due faster.