4 Ways To Finance An Investment Property

An investment property is a property you acquire with the intention to earn income or realise returns from it. Acquiring an investment property is a big step for anyone who is looking to grow their assets and net worth. This endeavour often requires a lot of money too fulfil. Hence, you might need financial assistance to acquire the property.

Commercial Loans

As the name suggests, commercial loans are suited for business investments rather than for personal purposes. While commercial loans are usually granted for investment properties such as office complexes and apartment buildings, a residential property can also be granted with a commercial loan if it has more than 10 units. The number of minimum units differs from one financial lender to another. So, you have to do your due diligence before applying for a commercial loan.

When you’re applying for a commercial loan, lenders look at the income you’re likely to get from the property rather than your credit history. Due to the high risk, you might be required to pay a huge down payment and even pay off high interests. 

The problem, however, is that traditional lenders could take months before they can approve a commercial loan. This won’t be good, especially if you’re eyeing a very prominent commercial space that would attract many other buyers or investors. If you need a quicker solution, what you really need is a commercial bridging loan.

A commercial bridging loan will avail you of the funds you need in the shortest time possible. This loan will assist you in at least making a down payment as you wait for additional funds from other lenders to be processed. It’s good to note that commercial bridge loans are often short-term. Visit various websites to discover this commercial loan type and its associated terms.

Conventional Bank Loan

A conventional bank loan differs from a typical mortgage loan because they’ll have different terms. One of the major differentiators is that you’ll have to pay a large down payment, which would be around 15 to 30% of the total price of the property. 

The interest rates you’ll pay for this loan depend on your credit history, especially your debt-income ratio. With a good credit score above 640, you’re likely to get favourable rates for your loan.  

Besides your credit history, you must prove that you’re capable of paying the loan. This does not take into account the possible income or returns you’ll get from the property you’re eyeing to invest. Most lenders will ask about your current assets and liquid cash reserves to ensure that they are enough to cover the loan. 

Hard Money Loan

This short-term loan will work for you if you’re looking to sell your investment property after purchasing it. In other words, you have no intention to rent or hold the property for long-term use. Buying to flip a house is an example of such an investment plan.

The lender will look at your credit history to determine if you can keep the end of your bargain. The better your credit history, the higher the possibility and probability of securing better terms for your loan. 

Before taking this loan, it’s essential to ensure that you have a market for your final product. Also, since it’s a short-term loan, expect to pay high-interest rates within a short repayment period. On the plus side, you’ll get the loan within no time; it’s a faster procedure compared to bank loans.

Find An Investment Partner

While this is not exactly a loan, finding an investment partner can also help on the financing side. If you have a friend or colleague who is interested to invest in real properties, then you can team up and purchase the property together. This way, you don’t have to shoulder the full amount of the property by yourself. 

Aside from that, your investment partner could be able to raise more capital that can be used for the property. The catch, however, is that you’ll be splitting the returns with your partner. After all, he or she has also invested in it. 

Additionally, you don’t have to limit yourself to just one investment partner. You can work with two or more who might be able to bring more financing options to the table.

Conclusion

As mentioned above, there are several ways to finance an investment property. Should one option fail, you can easily move on and try another loan. Before deciding on the financing option to choose, consider doing further research on each of them. Be keen on the loan terms and the advantages and disadvantages of each.