It’s common knowledge that investing in real estate is one of the most profitable ventures an investor can get into—assuming one can raise the capital to purchase a rental property. If you’re considering investing in real estate, but financing is preventing you from pursuing your dream, this financing guide for first-time rental property buyers provides you a few options to help you make that big move.
1. Larger Down Payment for Better Financing
For investors finding it difficult to obtain a mortgage or have been offered interest rates that are too exorbitant, you might want to consider a larger deposit. Putting down a deposit that is 25 percent or more usually opens the door for better financing options and considerably lower interest rates. Of course, a 50 percent deposit opens opportunities for even better financing options. Another great thing about paying a larger down payment is decreasing the length of any loan you end up getting. A larger down payment may mean postponing your purchase until you have saved up enough capital, but it’s worth it in the long run. By showing patience and saving up for a large down payment, you place yourself in a much more favorable position later on down the road.
2. Try Online Lenders
For those who have established a great relationship with their local bank or credit union, such institutions can be excellent options for financing a real estate venture. However, it’s good to know that these are not the only options out there. If you have found it challenging to obtain financing through your local lenders or their interest rates seem too high, start shopping around for a good online lender. Sites such as nerdwallet.com share reviews on the industry’s top online lenders. On top of benefits like quick and easy approval, better rates, and unsecured loans, applying for a loan via an online lender saves you a lot of back and forth from a bank or credit union—everything is done online.
3. Look for Investors
While being the sole owner of a rental property might be the ultimate dream, you may want to consider working with a few other investors in the beginning. Working with others will help get you started in the rental property business while easing some of the personal risks. Working as a team, you could possibly come up with a sizeable down payment or even purchase a property without a loan. This would allow you and the other investors to move on to the profitable aspect of the business venture sooner. Once your first property has a positive cash flow coming in, it’s time to start working to obtain another property. Continue this cycle until your share is enough that it allows you to purchase your own rental property. It might take longer, but the reward is a lot higher.
4. Seller Financing
If all else has failed, you do have one final option: seller financing. Usually, seller financing is only a viable option if the seller owns their property free and clear—this means no mortgages or liens against the property. With seller financing, you would be making the monthly mortgage payments directly to the property owner until it’s paid off, or you’re able to obtain some sort of financing (if you even would want to at this point). Nevertheless, before choosing this course of action, it’s best you go at it with a solid plan, as most, if not all sellers, will expect you to have the terms and conditions pre-established. Not only that, but they will be expecting legal protections should you default on your agreement.
Once you have purchased a rental property, you might want to consider hiring an experienced property management company to help manage your investment. Property management firms handle small and big details, including collecting rent, maintenance, evictions, among a long list of other things. To learning more about this topic and more, please feel free to reach out to a property manager to learn more about what to expect as a first-time rental property buyer.