Everywhere, you read about how difficult it is to obtain financing for a primary residence. But you don’t hear much about your investment property financing options. Part of the reason is that, in the internet age, investment property financing has so many options it’s difficult to keep up with all of them. Everything from a self-direct IRA to private loans are available with a lot of options in between. Here we’ll take a look at a few beginner investment property financing options.
Property Invest with a FHA 203K Loan
FHA 203K loans will not work for professional investors but these can be a good starting place for a beginning, part time investor. The catch for investors is that to qualify you have to be an owner occupant of the house once the repairs have been made. However, as a beginning investor that will live in at least one unit of the property, you can use a 203K loan to purchase and renovate up to a four-unit investment property.
There are two types of 203K loans. One is called a streamlined 203K loan and the other a standard 203K loan. The streamline version is limited in how it can be used but is straightforward in your ability to borrow up to $35,000 in renovation and related expenses. It can be used for many repairs, some of the more complicated being roof or HVAC replacement. But it can’t be used for structural changes such as moving a weight-bearing wall.
The standard 203k loan is more complicated and intended for major renovations including structural changes. These loans cover the costs of the renovation and go up to 110% of the after-renovation value. If you want to live in one unit of a two to four unit property, this can be a good investment property financing option.
Other Investment Property Options
If you are trying to break into investment property financing, when you go to a traditional lender, you’ll find several hurdles in your way. Typically, you’ll need a down payment in the 20% to 25% range. Also, you’ll likely be asked to document at least two years of being a landlord. Additionally, an appraiser will not only do an analysis of the property value but also of the rents being paid in the neighborhood. Besides the down payment and closing costs, you’re likely to be required to have up to six months of reserve funds. Meaning you need six months of liquid assets to pay all costs if you don’t have any rent coming in.
What some creative investors are doing as an investment property financing option is renting out their primary house and obtaining new financing for a new primary residence. While obtaining a primary mortgage is still not a walk in the park, it is easier than investment property financing. Creativity is always needed when looking for the best investment property financing option.
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Several times each week, I make the most current real estate investing information available to readers. This time, it’s about investment property financing options but the information I provide changes constantly to stay current with the market. Be sure to check back at: www.wendypatton.com. Also, get started learning how to do NO CASH lease options on real estate by picking up a copy of my bestseller book: Investing in Real Estate with Lease Options and Subject-to Deals.
By Wendy Patton
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