Real estate is a lucrative investment opportunity in IN. It has a high return on investment rates especially when done right. However, entering the real estate field can be expensive and tricky. The most common barrier to entering the field is lack of capital. As such, finding the right way to finance your real estate investments is the first step toward succeeding in real estate.
Here Are 4 Ways To Finance Real Estate Investments:
This is the most common and easiest to understand among investment property loans. In a conventional loan, the buyer will provide a down payment while the bank provides the rest of the amount. The bank gets a lien on the property you buy, meaning the bank has the right to take the property if you fail to pay the loan.
Conventional loans are a great option if you prefer long-term financing and have cash of up to 20% of the property’s price. Naturally, if you have a higher credit score, you are more likely to get better rates for your loan.
Federal Housing Authority (FHA) Loans
If you intend to live in the property you are buying, for example in a multifamily house in Lafayette, a Federal Housing Authority (FHA) Loan is one of your best options. This government-backed loan is meant to incentivize people to buy their own homes, so the required down payment is much lower than conventional loans—3.5%. Aside from the low down payment, you can get more competitive interest rates since the loan is backed by the government (in case the borrower defaults).
Although this type of loan may require more paperwork, it is relatively easier to qualify than in a conventional loan. Learn more about how FHA loans work here.
203(k) loans are similar to FHA loans because it also requires the borrower to live in the property being purchased. It also only requires 3.5% down payment. However, unlike the FHA loan, you can lump in rehabilitation or repair costs in your mortgage. This gives the investor an opportunity to invest in a distressed property that typically has a lower selling price, so your costs will be much lower.
The 203(k) loan is perfect for first time home buyers who are also looking for a way to earn extra money to help pay for the mortgage. It does require more effort, especially with respect to the rehabilitation, but this loan will make the whole process much easier on the pocket.
If you’re not interested in mortgages, you may opt to finance real estate investments through your Self-directed Investment Retirement Account. If you have already set up a self-directed IRA, then you know that you can use it to invest in real estate. Note, however, that this option is for the long-term because all income from your property goes to your IRA, not to you. It does come with other complications because you need to strictly follow the IRA’s rules. Still, if you’re looking for a way to diversify your portfolio without incurring a mortgage, financing real estate investments through your Self-directed IRA is a viable option.
It is a common misconception that investing in real estate is only for those with deep pockets. Fortunately, financing real estate investments have become much more accessible. So, even if you have limited capital, you can still find a way to become a landlord with the right investment property loans. Let us help you find a property in Lafayette, IN that is worth investing in.