Unique Ways to Finance Your Dream Rental Property

If you’re looking to make easy money, with less work than most other side gigs, then you need to enter into the magical world of rental property real estate investing. To unlock this dream, however, you’ll need to learn how to properly secure financing for your investments.


Unique Ways to Finance Your Dream Rental Property

Unique Ways to Finance Your Dream Rental Property

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There are six unique ways to finance your dream rental property that you should know about before getting started:

1. Hard Money Loans:

A hard money loan also referred to as a private mortgage, is a simple method of avoiding traditional loan procedures. These loans, which can sometimes qualify borrowers in as little as three days, are made to assist those with poor credit in becoming eligible for mortgages. Hard money lenders typically base the loan amount on the quick-sale value of a property already owned by the prospective borrower, having fewer restrictions than a bank loan. A hard money loan offers those who would not otherwise be able to qualify for rental property finance a way to do so, even though the interest rates are frequently higher. Finding the right rental loan provider in your area is the first step to take care of.

2. Conventional Bank Loans:

Unlike other mortgage loans, conventional loans are not federally guaranteed and have more stringent approval criteria, which is especially important for those wishing to finance investment properties. For normal loans, down payments can range from 3% to 20%, while some lenders might demand around 30% for an investment property. In addition, you’ll need to demonstrate your ability to pay two mortgages simultaneously in case a renter unexpectedly becomes unable to make their rent payments. It’s recommended to have a minimum credit score of 629, a low debt-to-income ratio, a steady employment history, and a great track record of making on-time payments toward your current house loan to be approved for a conventional loan.

3. Seller-Second Setups:

It’s common practice to finance rental properties in this way, and it may be highly beneficial for investors. Yet, it works best for people who have a little down payment or don’t qualify for the total loan amount. The seller-second option entails the seller giving up a portion, if not the entire, of the equity in the property to serve as a second mortgage to pay the required down payment for the loan. Before choosing this course of action, make sure the loan you are eligible for will permit a second mortgage to be added to it. While the majority of loans do, some do not. If that’s the case, you won’t be able to finance the property you’re interested in.

4. Using Your Personal Equity:

Borrowing against the equity in a home you already own, such as your primary residence, is obviously non-traditional, although not as innovative as some of the other choices we will examine. You will be able to buy another house and start your rental business using this quick and simple method of financing a property. House equity is calculated as the fair market worth of your house less any outstanding debts or liens. Those without a sizable down payment should use this tactic. Alternatively, you might utilize it as a ladder method to buy more rental homes and expand your portfolio.

5. Securing an Investment Partner:

Joining forces with a partner is a smart approach to financing rental properties. Financing your property might be a breeze if you can offer flexibility, greater financial support, and the expertise of another in the real estate sector. Your name will never appear on the mortgage agreement if you invest with a partner. This is useful for those who still want to grow their portfolio but have hit their loan lending cap. You can form this collaboration with a relative, acquaintance, or even a professional associate. As long as you have a reliable investing partner, you may theoretically use this method to buy as many rental properties as you want. Yet, if you want amazing results, you must choose your partner intelligently.

6. FHA Mortgage Loans:

To make it simpler for people to buy homes, the Federal Housing Authority offers lending choices with low down payments and minimal credit score criteria. However, because they must be used by the owner, Federal Housing Administration (FHA) loans are not meant to be used to finance rental homes. Although there are ways to avoid this, specific guidelines must be followed. The FHA mandates that before considering renting out a property, the borrower must reside there for at least a year and within 60 days of the mortgage’s closing. When you think about renting out your single-family home, you’ll need to show that you’ve lived there for at least a year.

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