Last Updated on Jan 26, 2020 by James W
Are you interested in making money through buying and selling real estate? If you’re ready to purchase a rental or flip project for the first time, there are a few things about funding that you need to consider. Take a look at these five great tips for financing a new investment property.
Tip #1: Know Your Credit Score and Make Improvements
Before purchasing an investment property, you’ll need to know your credit score. In most cases, you’ll be required to have a rating of at least a 740. If your score is lower than this, it could be challenging to find financing for your rental or flip property. However, it isn’t totally impossible with less-than-perfect credit. Just expect to pay more for interest and have a bigger down payment if you do.
Tip #2: Have a Generous Down Payment
Next, you’ll want to make sure you have a generous down payment when purchasing an investment property. For most banks, this is a minimum of 20%, but it could possibly be higher. The reason? Lenders want to make sure you’re putting in enough of your own cash to see the project through to a favorable outcome.
Tip #3: Consider Owner Financing
Another tip for purchasing an investment property is to consider owner financing. This is where the current seller retains a portion of the interest in the home and allows you to complete the project. This is usually only a good idea if you think you’ll make a decent profit after renovations. It can sometimes be difficult to negotiate, but it never hurts to ask just in case they agree. This is especially true if the home has been on the market for a length of time, and the owner doesn’t have too many other options.
Tip #4: Talk Directly to Local Lenders
One more thing to consider when financing a rental or investment property is to stay local when looking for lenders. In most cases, credit unions and regional banks often have less strict requirements for loans. This provides flexibility for you as a buyer—especially if you have a decent down payment and a good credit score. The reason behind this? They’re your friends and neighbors in the community who understand the area and whether or not you’ll be successful. Even if you have a pre-qualification with a larger bank, consider taking it to a local branch to see if they can work out a similar or better offer.
Tip #5: Be Open to Getting Creative
Finally, sometimes it takes thinking outside the box and being open to getting creative in terms of financing. If you’ve tried other methods and failed, consider asking friends or family to loan you the funds you need to purchase your property. You can also take out a home equity loan on an existing property, borrow against an old retirement account, or look back through life insurance policies to see if they allow you to take out loans against them.
Finally, when purchasing a rental property, you’ll want to make sure you work with a quality property management group. If you already have one picked out and have their information handy when talking to lenders, you can often show you’re serious about this new investment and make them feel secure in giving you the funds you need.
