You’ve thought about it long and hard. You’ve made a list of the pros and cons. You’re ready to make your mark in the world of property investment. There’s only one problem. You don’t have any money. Chances are if you have tens of thousands of dollars in savings, you’ve already found your income niche. The truth is few people use their personal savings to buy investment properties. So where do they get the money?
1) Leverage the equity in your home.
This is the most common method used by first time real estate investors. This is a powerful method to use, because you are utilizing leverage here. If this method is used, it is recommended that a secured line of credit be used. Generally speaking a secure line of credit can be up to 80% of the value of your home, minus any outstanding mortgage balance. With the secure line of credit, you only pay interest to the bank on whatever amount you use. You can utilize the funds at your discretion when you are ready. The interest rate on a secure line of credit usually is around the bank’s prime lending rate. This method is one of the cheapest ways to borrow funds, especially if you are in a low interest rate environment. Our investment experts can help you analyze your particular situation to see if this method is right for you.
2) Use a Vendor Take Back Mortgage.
This method of borrowing occurs when mortgage financing is arranged between the seller of the property and the buyer. The title is transferred to the buyer. Often this type of loan is a second mortgage which the seller is willing to arrange at below market rates to ensure the buyer can purchase the property. Most of these arrangements are not renewable or transferable to the next owner of the property. Although the risk here is greatest for the seller, it is often worth it if he has had a hard time selling the property or if he doesn’t immediately need the funds and has time to wait for greater returns on his investment. Keep in mind you will still need a separate, smaller first mortgage.
3) Leverage the equity in your rental property
Once you have equity built up in at least one rental property, you can use these funds wisely in order to continue to purchase investment properties. You can either put a secure line of credit on the rental property in order to access funds, or you can re-finance your rental property in order to pull out equity. A secure line of credit is better because you will only pay interest on the portion that you use. If you refinance the property then you have to pay on the entire mortgage balance.
4) Purchase a Rental Property with a Joint Venture Partner
This method is used by both beginning investors as well as experienced investors. With the classic joint venture partnership, you have a real estate expert, who does all of the work associated with locating, buying, and managing a rental property. In addition you have the money partner, who provides the funds required in order to purchase the real estate investment. If a real estate investor is able to master the art of joint venturing, there is no limit as to how many rental properties they would be able to purchase. However, the most important aspect of the Joint Venture Partnership is that it has to be a win-win relationship for both parties. Having a happy joint venture partner is key. If you are delivering on your promises with them and you are doing a good job, chances are that they will become an advocate for you.
Okay, so where do you start? How do you find these people? Easy. You call us. Here at Martin Presence we actually understand the complexity of financing an investment property and we know those people who can help you get started in a rewarding and profitable investment. Call us today!