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Ways To Finance For Real Estate Investment

Jan 30, 2008
Real Estate Investment is now treated as a major case of capital budgeting by using state-of-the-art investment analysis which incorporates the future stream of income it may generate and the associated risk adjustments. There are many ways to finance a real estate investment. Some investors may find it easy to get a loan for a good investment property. Others do not want to use standard real estate financing to buy a property. They would rather use creative financing. You can use any method to finance your real estate deal. As long as you remember there is never something for nothing in the real estate market you will do well.

When you find a property you want to buy the first thing you must look at is how you plan on financing the purchase. This can be in the form of a conventional loan. It is hard to get a lender to take this kind of risk unless you have perfect credit. There must be equity in the home. This may mean coming up with a down payment. You may be able to skip this if you are buying the home at far below the market value. The other problem with a conventional loan is the pre-payment penalties most banks impose. When buying a home to resell, you do not want to have your profits go into making a substantial early interest penalty payment. It makes sense to use this type of loan when you are buying the house as a rental property. For someone who is determined to flip the house, the conventional route is not the way to go.

The adjustable rate mortgage may be more to the liking of an investor wanting to flip a house. The terms of the loan can be negotiated so the maturity is in 3 to 6 months. This allows the loan to be paid off without the interest penalties. Some states, like North Carolina have legislation which does not allow the finance company to charge a prepayment penalty for loans under $150,000. You should check the local area laws to see what your finance companies are allowed to do. There are also loans available for the investor. The interest only loans are good for someone who wants to only keep the property for a short time. The payments are calculated on the interest of the loan. This can be beneficial to someone who is buying the property to fix it up and resell it.

It is important to know what is on your credit file before you find a piece of real estate you want to finance. This way you can fix any errors which may reflect badly on your credit score. You can also know what the lender is looking at to determine the risk of loaning to you. Generally someone with a credit score of 640 or above should have no problems getting a loan. The higher the score the better your chances are for getting approval. Some of the other things the lender will consider is the value of the property, the amount you have to put into it, and the location. Properties in distressed areas are harder to get loans for than an area which is growing.

Real estate finance is not difficult to understand. It pays to educate yourself with the options available. Speaking with a loan officer can help. It pays to have a friend in the finance industry anyways when you are investing in real estate.
About the Author
Kim Lee writes for Number 1 Rental Portal in Singapore This portal lists rental properties like HDB flats, whole flats, landed property, office space, private condos etc.
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