Real estate investment has been one of the most consistently profitable ways to put your money to work, despite the housing crash which soured many people on the market. In the past few years, home prices have been steadily climbing, indicating that it’s a good time to get back into real estate investment, even for the most cautious investors.
In order to invest and make significant profits though, properly arranged financing is probably the singular most important factor. Without it, you won’t be able to get in on many good deals and maximize your income. Here are a few tips to help you get your financing in order on the way to becoming a real estate mogul:
1. Focus on Smaller Banks
While you might be able to get bigger loans from the banking giants, smaller banks usually have a lot more flexibility with regards to their terms, meaning that you might be able to get loans with smaller down payments than usual or and access credit even when there are other factors which make getting money from the traditional lenders difficult. The neighborhood banks are usually more willing to lend funds when you’re going to be investing locally, so put that into consideration too.
2. Cash Out Refinance
A cash-out refinance is similar to getting a second mortgage on your home but it differs from that in the sense that unlike a simple line-of-credit from a traditional bank, the interest on the loan is tax-deductible. When you combine that with the fact that the interest terms are usually much more favorable than a run-of-the-mill home equity loan, it’s clear why this is so attractive to investors. It’ll help you free up more money to invest with but you’ll need to keep in mind that since it resets your mortgage term, coping with the new monthly payments can be difficult if something unfortunate occurs – a job loss or illness, for instance, especially without a backup money source like Survey Cool.
3. Pay as Much as Possible Upfront
When it comes to real estate financing, the issue of down payments is the classic paradox between short and long-term benefits. If you pay a small amount as down payment, it will result in an increase in the interest for the loan, meaning that you might end up paying the difference or even more over the course of the loan. On the other hand, paying more as down payment means you’ll be able to invest in a lower number of properties but with less interest overhead. For a new investor, the second approach is almost always better, since it helps you learn to prioritize and also prevents you from over-leveraging yourself.
4. Stick to Fixed Rate Mortgages
Again, long-term planning is essential here. Adjustable rate mortgages (ARM) usually seem more attractive due to their lower starting rates, but the unpredictability is not healthy for your portfolio. A pre-fixed rate will enable you to crunch the numbers fully and understand exactly what your position and likely outcomes are. That way, you’ll be able to plan much more effectively, make better strategic decisions and earn more profit as a result.