8 Tips For Financing Investment Property
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt
When we talk about finances, you’d probably think about mortgages, bank loans, or anything that involves money. But let’s get to the point; you will never succeed in real estate investment when you don’t know how to manage your finances. Understanding and managing your finances is crucial for every home buyer to prevent any overwhelming money issues. Whether you plan to invest in a pre-selling condo in Manila or any real estate property, it is advisable to know what you are into.
When it comes to real estate investments, the first deal may be the hardest. Not to mention, it can be daunting and challenging sometimes. That is why we list down some tips on how home buyers can succeed with their investments.
1. Increase the size of your down payment
Home buyers cannot opt for mortgage insurance since it won’t cover the investment properties. Banks want a confirmation that a buyer is committed enough to his/her purchase. It is even advisable for home buyers to have a 20% down to secure a traditional financing for them. The higher the down payment, the better. However, if you do not have the down payment yet, you can opt to have the second mortgage on the property. The banks would allow you to borrow funds from your family and friends who are willing to help you financially.
2. Be a “Strong Borrower.”
Admittedly, borrowing money is not that simple as you think it is. There are a lot of factors that qualify you to borrow – that includes your credit score. A good credit score is an advantage for every homeowner. Banks are usually interested with borrowers who have higher than the average credit score. If you plan to borrow, make sure to monitor your credit scores since most lenders would consider the impact they have on the borrowing rate. One thing you can do to have a good credit score is to be a good borrower and pay all your previous balances.
3. Try to avoid big banks
Some of the home buyers may be tempted to invest in the national or big banks. However, if your down payment is not big enough, investing in these banks may not be the best choice. For home buyers, it would be much easier and faster if you consider going to a neighborhood bank for financing. Neighborhood banks are willing to invest with local home buyers. Moreover, home buyers can also find mortgage brokers. They have access to a wide range of loan products. But just be careful and do your research before you settle for one.
4. Utilizing your home equity
If you are already a homeowner yet you still want to invest in another property, you can use the equity you have built up to help augment strengthen your down payment. It does not matter if it is through a home equity loan or cash out financing, using your home equity may be a good option for you since this could help you borrow up to 80% of the value.
5. Inquire about owner financing
Whether you are aware of it or not, there are techniques to approach potential seller. For home buyers, they can inquire about the owner financing. Owner financing is when the seller of a property provides a loan to the home buyer. It is used to make the sellers skeptical of potential buyers since any could qualify for a bank loan. However, a home buyer should approach the seller with a solid plan out with fixed terms. With this, it would help convince the seller of the viability of a plan.
6. Monitoring your debt to income ration
Keep in mind that home buyers should pay attention to their debt to income ration, since financing an investment property also means that a home buyer must be qualified for two houses. That means, your investment with the first property would also matter. However, purchasing the most expensive property on a particular location may be to your disadvantage when shopping for the next property. Make sure that the investment you make would not be a conflict regarding your finances.
7. Join forces
As a home buyer, if you think you are having a hard time coming up with the down payment, you can consider sharing the burden with another investor. Perhaps, you can ask your friends or relatives to team up with you so you can share the cost of the property. You can split it with 50:50 or whichever split ration suits them better. Depending on the percentage, an investor can choose the responsibilities they want to take such as the property management and maintenance. With this, it would have a lesser burden than purchasing the property alone. Moreover, if you plan to team up, make sure you will both have a clear agreement before you decide to pursue with the investments.
8. Think outside the box
Purchasing a property is not that easy as you think it is. There are certain things to consider before you decide on what property you should buy. That means, as a home buyer, you need to think about the things that you need to do for you to be at an advantage. Of course, you do not want to commit costly mistakes, right? For you to have the property that you want, you have to be careful with every decision that you make. This is to ensure that you will not regret any of it.
Investing in a real estate property is a great way to secure your future. However, it is up to you on how you can protect and manage your finances. If you do not have any idea on how to handle your money, then you have to make sure to consult or hire a real estate expert for you to be guided on what and what not to do when it comes to property investments.