Private Money Lenders – The Most Convenient and Flexible Source of Funding

As you already know, funding for your real estate deals is essential; without which, the deal cannot proceed. However, you may have noticed that with the present real estate market falling apart at the seams, getting funding is not as easy at it used to be. Requirements for traditional funding have become tighter. You cannot get a Fannie Mae and Freddie Mac loan for your real estate investing deals. Sourcing from hard money lenders can cost you by as much as 25 percent in interest and points. Because of these, more and more investors are turning to private money lenders to finance their deals. But with so many real estate investors seeking non-traditional funding, how do you lure these financial backers to invest in your deals?

How to be a Magnet for Attracting Private Money Lenders

Attracting Private Money Lenders Image by jtyerse via Flickr

1. Real Estate Website

Social media has changed the way businesses are conducted, and this includes real estate investing. An online presence helps make you to be found not just by potential buyers and sellers, but private investors, as well. Your website is your presentation tool that can reach potential personal money investors that you may not meet face to face because they can be from the far corners of the USA, or even the globe. Your website must depict your credibility and success as a real estate investor so that potential private money lenders will feel safe putting their money in one of several of your deals. Even at this phase, you can start cultivating a relationship with potential personal money lenders.

2. Networking and Incentives for Referrals

The very first private money lenders you possibly could have are the people you already know, such as your mom, your relatives, a colleague, or your neighbor. Tell everyone you know and meet that you are looking for private funding and highlight that the ROI is greater than when the money is parked in the bank. Ask people you know to introduce you to people they know who have money to invest. Offer incentives to people who can successfully refer you to a personal money lender. Just do not forget to factor in this expense to your real estate deal.

3. Your Present Private Money Lenders

When looking for more investment property funding, you may not have to look far. Consider your existing private investors. As long as you keep them happy by delivering the promised ROI, they would be more than happy to invest again in another deal with you. They do not need much convincing from you since they already have a good business experience with you. So do not forget to also present other real estate investing deals you have to them.

4. Word of Mouth Marketing

Existing private money lenders who are happy with your deals will not just do a repeat-business with you, they can also recommend you to their friends should you need more funding for your other deals. If they don’t, all you need to do is to ask them.

5. One-on-One Presentations

Many people may not be convinced to put their money in your deal when you casually mention it while networking at a social gathering, or when people have stumbled upon your website. This is where one-on-one presentations come in. You can set an appointment with them for you to make an informal presentation about your deal over lunch, dinner, or coffee. Honestly discuss them how they can benefit from this deal, the potential risks involved, and the safety nets to secure their investment. This is your venue to convince them of the profitability of the deal, and win their trust.

6. Organize an Investors’ Dinner or Luncheon

To convince more than one investor in one presentation, you can also organize an Investors’ Dinner or Luncheon. By gathering these potential investors together, you can create an atmosphere of competition among them by letting them know that the real estate deals are limited and not everyone’s investments can be accommodated right away. You can set a first-come, first-served rule. When you have gained a good name among private money lenders, you can even ask them to pay their own dinner during such gathering.

The success of your property investing business cannot perpetuate without a ready supply of cash. Hence, knowing how to go about attracting private money lenders is a must for any real estate investor.

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Investment Property Loans Image by lalunablanca via Flickr

Rationale Behind Investment Property Loans

Personally funding your own real estate investments can bleed you dry. Most newbie real estate investors do not have the money to fully pay off an investment property, that’s why they will need to secure funding from somewhere. Even savvy real estate investors who have the wherewithal to pay investment properties in full would definitely not do so. They use investment property loans as leverage so that they do not touch their own personal funds. In investor parlance, they use OPM or Other People’s Money to make money.

Investment Property Mortgage Loans Versus Residential Mortgage Loans

If you are buying a property that you do not intend to use as a place of residence but for profit, then it is considered as an investment property. If this is your first time to obtain a mortgage loan for your rental or other investment property, do not expect lenders to look for the same things that you were asked for when applying for a mortgage loan for your personal or primary residence. How the property is to be used is crucial for lenders in deciding on collateral, down payment, and income verification requirements, and the terms and rates.

Requirements For Income Verification. If you can remember it right, you were required to verify your source of income when trying to obtain a residential mortgage loan. This is because lenders would want to be certain that the borrower can afford to consistently pay for the monthly mortgage payments. The debt to income ratio is often used to determine this.

The process of income verification to obtain a loan for a real estate investment is another story because it will not concern your income but the income that the real estate can generate. So no payslips and other personal financial documents may be required. However, lenders may also require that you show them rental receipts, net income statement and other financial documents as filed on your income tax schedules, if you already own a property used as a rental home, vacation home or for commercial use. This is to find out the proportion between income and the loan amount.

Collateral and Down Payment. The lender makes use of the down payment to establish the level of risk that he will be coming up against. For a residential loan, lenders commonly require a minimum 20 percent down payment, bringing about an 80 percent loan-to-value or LTV ratio. At this rate, the homeowner is not liable for any additional requirements, like a private mortgage insurance. This insurance is required for mortgages with LTVs that are more than 80 percent.

On the other hand, you do not have to make a down payment when obtaining an real estate investment loan as it is already secured by the property itself. With the rents and other income earned by your investment property, your lender is assured that you can service the loan.

Terms and Rates of the Loan. As an investor-borrower, you have the advantage to bargain a better loan rate and terms than if you are borrowing for a personal home. This is again because of the consistent cash flow that can be expected from the rental property. The lender would also be more willing to give a real estate investor a more favorable rate and terms to cultivate a good business relationship than to an ordinary homeowner if they spot business opportunities related to the said real estate.

Factors That Affect Investment Property Loan Rates

The mortgage rate you get for your real estate investment will depend on several factors. Some are discussed below.

Rental Property Versus Buy-Rehab-Sell. You can get a better rate with a rental property that already has a dependable tenant whose monthly rental is higher than the monthly mortgage payments, as opposed to a house that you intend to fix and resell for a profit. If you are into rehabbing handyman specials, you have to substantiate that you can afford to make the monthly payments even if the home has not been sold yet.

100% Mortgage and Down Payments. Loan terms that do not require a down payment, labeled as 100 percent mortgage, may also exact a higher interest rate than those that do.

Property Location. If your rental property is in a good neighborhood where vacancy rates are low, this reassures your lender that you can fulfill the payment schedule, hence, it is in your cards to get a lower rate.

There are more factors that can affect your loan rate. Rates also vary from one type of lender to another. Shop around to get an idea of the range of rates you can get and so that you can haggle. You can use a mortgage rate calculator in one of the many sites in the Internet to compute for your rate.

Can You Obtain An Investment Property Loan Through FHA?

Some people prefer obtaining mortgage loan from the Federal Housing Authority because of its more lenient credit qualifying criteria and the down payment or equity requirements are less as compared to conventional loans. Moreover, borrowers with a slightly marred credit record or those who do not have credit history yet may qualify for an FHA.

Despite these advantages, however, you as an investor may not be able to secure an FHA loan to finance your real estate investment because only properties that are to be used as primary residence can qualify. But if it is a duplex or a 4-plex and you are planning to make one of the units your primary residence, then you may qualify. If, later on, you move out of the unit, the property may still be considered as an FHA property and may qualify for streamline refinance or loan modification.

Investment property loans are essential to any real estate investor as it can be used as a leverage to make profit using other people’s money, of course, at a cost. Besides other factors, the earning potential of the real estate holds sway in determining the loan rates.

Investment Property Financing – Finance Investment Properties With 100% Financing

Real Estate Investors’ Big Secret – Investment Property Financing

5 Ways To Finance Investment Property

Quick Tips On Financing Investment Properties

No Cash For a Down Payment? Consider 100% Financing on Investment Properties

Despite the tightened criteria to qualify for a loan, it is still possible to obtain 100 % investment property financing if your real estate investment makes sense, and if you have a good credit rating and some creativity.

Investment Property Mortgage – Ways To Get The Best Loan Rates For Your Investment Properties Including The Use Of A Calculator

Savvy Investors Leverage on Investment Property Mortgages

Investment property mortgage is the lifeblood of any real estate business. Most investors cannot, or would not, use personal funds to purchase investment real estate. They make use of other people’s money to make money. Of course, you cannot do this if the interest rate you get is higher than your rate of return. So here are a few tips on how to obtain better rates and terms.

Sort Out Your Income and Debt Before Applying for an Investment Property Mortgage

Your income and debt could either decrease or increase your loan rates, whether applying for a personal or rental property. If debt servicing eats up more than 36 percent of your income, chances are, you will merit a higher financing rate. To obtain a significantly lower loan rate, fix your finances first in such a way that debt servicing will constitute only 28 percent of your income.

Raise That Score To Get Better Investment Property Mortgage Rates and Terms

Another factor of mortgage rate is your credit rating. Evidently, a stellar credit score will more likely merit a lower rate. A score of 620 may add as much as three percent to your rate as compared to having a score of 760 to 850. So before applying for financing, check you score first and take pains to improve it if it is still below par.

Save Up For Down Payment For Your Investment Property Mortgage Loans

The higher down payment you can put up, the lower the rate you can get. That is why, it is crucial to save up some money for this payment. Try to have at least 20 percent for down payment to get better rates. Choose your lender well as some may ask for a heftier down payment for investment properties. In UK, rates for real estate investment also used to be higher than those for residential properties.

If you cannot raise money for down payment, you can opt to get a second loan to take care of this. Some investors advice that you obtain the 2nd loan from the same lender to avoid confusion and complications in the future.

Refinance Mortgages for Investment Properties

If you already own a property that has substantial equity, but you feel burdened by the high mortgage rate or you need to improve your cash flow, consider refinancing your loan. A cash-out refinance is one way to convert equity into cash. You can also refinance to a lower rate or longer term so that you can better afford your monthly mortgage payments and further improve cash flow.

Try An Investment Property Mortgage Calculator

Before jumping onto the first mortgage you get, shop around first to get an idea of the range of rates you can obtain. Many websites provide investment property mortgage calculators to make things easy in determining how much equity you need to have, and also get suggestions on the most appropriate loan for you.

Every shrewd investor knows that a better investment property mortgage rate has a tremendous impact on cash flow and the profitability of the investment; hence, knowing the factors that affect rates and how to work on them to your advantage is crucial.

Refinance Investment Property – 4 Other Reasons For Refinancing Loans For Investment Properties Besides Lower Mortgage Rates And To Cash Investment Out

Refinance Investment Property To Adjust Terms According To Your Current Needs

After some time of paying off the mortgage for an investment property, your personal earnings and investment needs may have altered. Hence, you may find to need to refinance investment property so that you can either change the terms or loan period or even the interest rate. Should you now be able to afford a higher monthly mortgage payment than before, making your loan duration shorter allows you to pay less interest and take ownership of your investment property sooner. Should you find yourself in the opposite side of the financial spectrum where you need more affordable monthly loan payments, the you can also refinance to extend the loan period so that you minimize the risk of missing out on payments.

To Switch To Lower Investment Property Refinance Rates

One of the main reasons investors refinance investment property is to substitute current mortgage with a new loan that provides lower interest rates. A two to three percent reduction in interest rate can contribute to a few dollars of monthly savings, depending on your total mortgage debts. And yes, more savings mean more profit.

Besides looking for lower rates, some investors also refinance their mortgage to switch from their adjustable rate mortgage (ARM) to a loan offering fixed interest rates. This is especially sound to do when current interest rates are really low, hence, you can opt to lock in dirt-cheap interest rates. On the other hand, if you still see interest rates in the long run to plummet, you refinance to switch from a fixed mortgage loan to ARM.

Cash Out Refinance Investment Property To Boost Cash Flow

If you find your real estate business financially tight and needing more liquidity, refinancing is one way to cash your investment. You can do this if you have accumulated sufficient equity in the property. Even without the cash out scheme, you are still, in essence, boosting your cash flow when you refinance a property with a lower interest rate or extended loan duration since you will be paying less in monthly mortgage.

Refinance Investment Properties To Upgrade Properties and Increase Rents

Some investors opt for the cash out refinancing and use the cash to bring the property to code. Doing so increases the market value of the real estate, hence, enabling them to also increase rental fees. Now you have an idea of where to get funding should you decide to renovate doors, floors, kitchen appliances and cabinetry, extend the structure to increase living space, replace the roof, or whatever renovations you are considering.

Obtain Investment Property Mortgage Refinance To Acquire Another Property

Besides renovating your property, you can also use cash out refinance to invest in another property leveraging on the accumulated equity of the existing property.

Use Investment Property Refinance Loans To Use Money For Other Purposes

Actually, you can cash out refinance to fund just about anything, not just for your real estate investments. You can also use it to diversify your investments in other baskets such as the stock market and market for other commodities. You can increase your retirement savings, consolidate debt, start a new business, buy a new car, augment funding for the college tuition of your kids, and just about anything.

With lesser interest rates and monthly mortgage payments, and possibly additional cash, you can refinance investment property to boost cash flow, strengthen your investment power, increase long-term wealth, pay off debts and just about anything.

Investment Property Advice Image by HVargas via Flickr

Cash Flow-Protective Investment Property Advice

Always remember that there are two parts in the equation of making money in real estate: the rental income and the expenses. One will fill your cup, the other can possibly bleed you dry if you are not careful. The key then to a profitable real estate investing is to find ways to increase rental income while curbing expenses. However, you can only do so much to increase rental income. So it makes sense to focus some energy on keeping expenses in check. Besides, no matter how sizable your rental income is but your expenses are also over the top, then it could eat away at your cash flow and you could still end up in the red. To help you maintain a profitable balance between the two, heed the following investment property advice.

Investment Property Advice When Buying:

Acquire Low-maintenance Properties

When buying an investment property, always keep in mind that your tenant, not you, will be staying in the property so skip curb appeal and other features that can only add to your maintenance costs. Do not also be easily swayed by a bargain price if the structure looks like it needs maintenance that could just eat away at the savings you get from the cheap acquisition. Instead choose to buy properties that are built with materials and fixtures that entail minimal maintenance. Opt for properties that are durable and needing very little upkeep. This includes lawns, landscaping, hedges and the like.

Investment Property Advice On Maintenance

Hire Mr. Fixit

As a newbie real estate investor, you may have intended to perform some of the tasks yourself. However, it pays to have a reliable handyman around to handle everyday maintenance and repairs to free up some of your time to search for additional properties and minimize maintenance costs. By having someone to immediately address property concerns needing repair, you can avoid the exacerbation of problems that can incur you large expenses. This will also be much appreciated by your tenants. You will be glad you hired a handyman for your first property especially if you acquire another rental property.

Make Your Motto “Prevention is better than cure.”

Make it a point to repair leaky faucets, roof, or toilet or damaged floors as soon as you can. That is what Mr. Fixit is for. Otherwise, the damage can compound and so will your expenses. Seek advice from your maintenance guys on how to anticipate repairs and ask for suggestions on how to substitute items needing high maintenance with low-maintenance components.

Investment Property Advice When Renting Out

Tighten Tenant Screening Process

If there are high or low maintenance rental properties, there are also high or low maintenance tenants. As with your preference on rental properties, go for low maintenance tenants. Do background checks and prepare legal contracts that can protect your property. Avoid renters who incessantly complain and who cannot keep their homes tidy. Selecting responsible tenants can substantially do a lot in minimizing maintenance, repair and depreciation costs, not to mention your headache. This adds to your profitability.

Enforce Rigid Repair Clauses

To prod tenants to be responsible in taking care of their rented homes, make it an agreement that they bear the first $100 of repair expenses. You can also ask for steep security deposits to ensure that they do not vandalize your property. Just make sure to properly explain to them why you are setting these conditions so that you do not turn off good renters.

Heed these pieces of investment property advice and you can be sure that you can protect your cash flow and profitability by minimizing maintenance costs and other expenses.

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Buy Income Property by woodleywonderworks via Flickr

Buy Income Property During The Bargain Season

Like some consumers looking forward to end of season sale, Black Friday sale and other sale events, savvy real estate investors also lick their lips over rock-bottom prices of homes and cut-rate interest rates. These are two indicators that led many real estate experts to say that now is the best time to buy income property. Owing to the overall ailing economy and stringent loan qualifications, demand for mortgage has slackened. This pushed prices of real estate and money to nosedive. For real estate investors, this is the season buy.

4 Seasons of The Real Estate Market

To maximize your profits when investing in real estate, you must have a good grasp of the phases of the real estate market. It cyclically goes through Phases 1 to 4. The Buyer’s Market spans Phases 1 and 2, while the last two phases involve the Seller’s Market. The different interplay of market forces in each phase gives real estate investors clues on what appropriate strategies to implement during certain stages to rake in more profits and avoid calamitous actions.

Buyer’s Market: The Best Time To Buy Income Property

Phase 1 of the Buyer’s Market is characterized by plummeting home values. Despite their low prices, demand falls, that is why, homes remain unsold and linger in the market for prolonged periods of time. The market is crammed with unsold properties. Today’s glut of foreclosed properties is an indication that we are in the buyer’s market. Most people today hesitate to buy income property or even a primary home because maybe they just lost their homes or they do not qualify for a mortgage loan. Even if they can get a loan, newbie investors may still dither to buy income property for fear of seeing their properties inherit the fate of homes which are worth less than their mortgage.

But for savvy investors, this is the time to stake out and wait for the market to hit bottom. Of course, there is no definite way of exactly determining this but when prices show signs of leveling off, it is a signal for you to pounce and buy income property. Prices may still go down but learn to determine when the market is about to shift. Your game plan here is to acquire while prices are low and hold on to your properties until the Seller’s Market comes when prices go up.

During the Phase 2 of the Buyer’s Market, prices of properties stop declining and a some start to increase at faster rates. The market sets out for a complete upturn. Properties that have remained in the market start selling. Inexperienced sellers are happy to sell their properties that has been stuck in the market for so long. You can make offers to sellers that are almost within their asking price. Just make sure that you have done the numbers and research of the market to determine value of the property.

Seller’s Market: The Riskiest Time To Buy Income Property

During the Phase 1 of the Seller’s Market, prices of properties are increasing and homes are selling at an escalating rate. The demand for properties has also begun to rise. This is the time for you to sell the bargain property you cheaply bought during the Buyer’s Market. You can still buy income property if you can get it at the right price but be fully aware of the worth of properties. Drop overpriced properties from you shopping list. This phase is great for flipping properties.

However, when Phase 2 of the Seller’s Market sets in, it may be time for you to rest from buying. This phase is considered the most dangerous period to buy income property since it can instantly raze you to the ground. The rate of selling properties declines as market demand goes down while sellers’ asking prices still remain exorbitant, hence, inventory starts to accumulate. With the inventory build up, stubborn sellers figure out the shifting of the market cycle, they start lowering their asking prices. Buyers wait for the market to reach the lowest point before they re-enter the market. This could take six months to one year to happen. And the market cycles back to Phase 1 of the Buyer’s Market.

To help you determine the best time to buy income property, understand the real estate market cycle as this has been going round for the last 150 years and is showing no indication to stop anytime soon.

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Image by epeigne37 via Flickr

Location precedes structure or the building. That should be the emphasis to consider when deciding on where to buy investment property. A respectable real estate investor once said that if you have to choose between a property in a good location but with an inferior building and a property in a lousy location with an impressive building, pick the former. This is because location is constant while structures can be renovated, remodeled or demolished. Of course, you do not have to settle for any of these if you can find an investment property with a fabulous structure located in a fantastic area offered at a reasonable price that fits your budget. So how do you determine a great location?

Pointers On Where To Buy Investment Property

Locations With Sustained Capital Growth. Look for places that are registering capital growth. This could be a promising suburb with an exceptional attraction or located near the city. This may also be a local town with a thriving industry. Most often, these places bustle with a robust economic activity. Properties that are near schools, workplaces, malls, parks, beaches and other important establishments and attractions and are accessible to public transportation would most likely make a good investment. You can target families with kids studying or adults working in these institutions as tenants. An area with a healthy economy also means that the population there can pay for rental. Ten to 20 years down the road, properties in capital growth areas will also allow you to earn not just from monthly rental, but also from capital gains once you eventually decide to sell the property.

Properties In The Buyer’s Market. When deciding on where to buy investment property, another important consideration is the real estate market cycle. Go for areas that are in the Buyer’s Market. This phase is characterized by a decline in home values and properties remain in the market for extended periods. This is the time when you can buy cheap and wait for the next Seller’s Market, during which housing prices go up, before you sell. If you want, you may also buy investment properties during the early phase of the Seller’s Market for flipping since selling goes at a quicker rate at this point.

Properties With Good Rental History. It would be great if the property you are eyeing already has existing tenants so that you can fill in the landlord shoes and start receiving monthly rental income right away. However, for your protection, check on rental history record; how the tenants are, if there were extended periods of vacancy and reasons for such.

Properties Away From The War Zone. Avoid properties in neighborhoods that have the potential for strife, violence and have high crime rates. Although you will not live there, you may have a hard time attracting tenants or you may not be able to find an interested buyer when you decide to sell it. Also think twice about locations that are prone to calamities such as flooding and earthquake.

To help you decide on where to buy investment property, consider locations that are in the Buyer’s Market, peaceful, indicate capital growth and that have great potential for occupancy.

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Property Investment Loans Come In Handy In A Buyers Market

Dirt cheap properties left in a jumble of foreclosures and short sales by the crash of the economy and the real estate industry is an indication for savvy investors, like you, that the time to buy property investments is ripe. With so much bargain available in the market, you need all the capitalization you can get. You can stretch out your buying capacity by leveraging on property investment loans. Besides expanding your buying power, let us see how property investment loans can benefit your investing exploit.

Property Investment Loans Magnify Your Buying Power

Investing in a property requires a substantial amount of funds that is why many people cannot really afford it. Property investment loans can magnify your buying power allowing you to acquire more properties than what your current bank account could afford you. Buying investment properties like this  props you up in building your net worth. Just make sure to work out the numbers on how to pay off the loan. Stabilizing your financial standing is the best way to prepare for a buyers’ market. Bolster your financial affairs so that you can easily qualify for property investment loans. Getting a pre-approved loan makes you all geared up for the killing.

Property Investment Loans Let You Leverage on OPM

The most significant benefit you get from property investment loans is that you  can leverage on other people’s money (OPM). You make money by using OPM. Property investment loans allow you to own entire properties even if the payment you have paid is only a certain percentage of their worth. You can profit from the properties through rental income or appreciation, even if you have not paid off their entire value yet. With property investment loans, you do not need to use your own funds, thus, making them available for other investments, such as the stock market. Even with 20% down payment requirements on rental properties, that is much more leverage than anything available when investing in the stock market.

Property Investment Loans Offer Affordable Interest Rates

As earlier mentioned, stabilizing your finances primes you for the buying season. A passing FICO score allows you to avail of property investment loans with reasonable interest rates. A rickety credit standing will most likely get your loan application disapproved and your next option would be to approach private lenders who are lenient with credit scores but charge hefty interest rates.

Approval For Property Investment Loans Is Easy As Pie

Majority of creditors have clear-cut criteria when approving applications for property investment loans. You can easily tell if you get approved or not. The importance of financial stability is again stressed here. Lenders will rubber-stamp your application for property investment loans if your finances are well anchored.

Property investment loans are a beneficial facility for real estate investors to stretch their buying capacity and leverage on other people’s money and they can easily be availed at reasonable interest rates provided you have a good credit standing.

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Buying an investment property is not as simple as going to a shopping mall, window shopping and trying out which ones on display fit you and swiping plastic to pay for the purchase. There are important things to consider such as funding the investment, searching for the right property at the right price and your exit strategy. The following serves as a guide for you when buying an investment property.

Setting The Financial Stage For Buying An Investment Property

Applying For Loan Before Buying An Investment Property. Many people search for a property to invest in first before they work out their finances. However, since applying for a typical loan can take some time, getting a pre-approved loan can also be a great move. In this way, you will not be put in a situation wherein the property you are eying has already been sold while you are still waiting for the approval of your loan.

Obtaining a loan beforehand helps you objectively get a clear picture of your financial state. The process will help you  to take stock of your income versus your expenses and your other financial commitments. The creditor will also look at at your credit history and current savings. By weighing all these things, you will get an idea of how much loan you can afford to repay and for how long. Knowing this will guide you in looking for an investment property according to price range as it gives you a specific budget already. Additionally, agents and sellers will regard you as an earnest buyer by obtaining a pre-approved loan.

Securing a loan in advance also gives you time to study the different types of loans and decide on the right one that suits your needs. The choices include a fixed rate loan, variable rate loan and interest only loan.

Sorting Out Other Costs. When buying an investment property, you must realize that besides the selling price, you also have to pay for other fees, including taxes, legal fees, local government transfer fees and insurance fees that accompany buying an investment property. You also have to prepare to pay for the downpayment which is nowadays often at 20 percent of the selling price.

Searching For The Property

An agent can help you look for the investment property that suits you. You can also register in online sites that help you find the property to invest in. Attend local real estate investment club meetings and network with wholesalers. Leverage  social media and online classified ads in broadcasting your search for a specific kind of property. Your family, friends and social network may also be the link to the property you are looking for. Just make sure to be clear on the kind of property you will invest in.

When deciding on the property to invest in, an important factor to consider is your strategy for the specific property. Are you going to keep it for some time and rent it out?  Are you retailing it? Is it residential or commercial? These considerations may affect the type and location of the property that you choose. Some savvy investors say that it would be better to have a so-so building in a great location, rather than own a great building in an undesirable location.  This usually boils down to how much headache are you willing to put up with for higher cash flows.  Buying a $5,000 fixer upper to hold as a rental does you no good when the tenants stop paying after 4 months.

Buying An Investment Property – The Real Deal

Making An Offer. So comes the big day for you when you make your actual purchase. Buying an investment property typically starts with you making an offer for the property. You need have your earnest deposit money ready, usually $500 – $2000 for smaller deals and up to to 10 percent sometimes for larger deals.  When participating in an auction, such as a sheriff’s sale or bank auction, 20 percent of the purchase price will be required upfront before you can bid. When buying from a private individual try to keep the amount as low as possible, so as not to tie up your money for an extended period of time while sale process works its course.

You may also need to brush up on your negotiation skills. You also must study and understand the terms before inking any contract or agreement.

Sealing The Deal. Once you have agreed with the seller, you may now call your lender for the loan so that you can finalize the purchase. With your pre-approved loan, you can breeze through the process. Once you satisfy all the conditions stated in the contract, the sale pushes through and you now own the property, with the help of your title and escrow specialists.

The process of buying an investment property must be clear in your head before getting involved in one so that you can chew over important factors such as funding and your exit strategy.

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How To Buy Investment Property – Taking The First Step In Real Estate Investing

The rising popularity of real estate investing makes many people interested to learn how to buy investment property. Acquiring a property is the first major task that a real estate investor has to perform, preceding rehabbing, renting out or selling. Acquisition is not a simple task because you need to painstakingly research and analyze the property by weighing numerous factors. Due diligence is necessary to ensure that your bottom line will not bleed red with deficits.

How To Buy Investment Property – Knowing What You Want

Acquiring a property starts with knowing your preferences for the type of property you want to invest in. You may prefer renting out a 3BR, 2 bath house, an apartment, a multi-unit building, a condominium, mobile homes, a commercial complex, store fronts, among others. If you already have a vision, this is the easiest part in the research phase. All you need to do is replay that vision in your mind, daydream. People curious on finding out how to buy investment property may already be dreaming of owning a multi-door apartment, passively receiving rental income every month and making a hefty profit when selling the property years later due to appreciation.

How To Buy Investment Property – Locating What You Want

Having known what you want, the next logical thing to do is look for that kind of property. This is not limited to the type of building, it also includes the particular area or location of the property. A real estate investor pro said that it is better to buy an inferior building in a great location than buying a sensational building in a poor location. A great location means an area that hosts a diverse economic bustle that bespeaks of work and entrepreneurial opportunities for tenants. This good area must also harbor good schools, transportation and shopping malls to cater to the needs of the tenants. It is not just their needs you think of when you choose an area. Consider areas that are in close proximity to your residence so that you can regularly check your property.

Another important thing about location that affects your game plan on how to buy investment property is that it has an influence over the price of your investment, both in terms of rental fees, your acquisition cost and eventually your selling price should you decide to sell it later. The location even has a say on the marketability of the property and the kind of tenants you will be letting in. Avoid areas with high crime rate.

How To Buy Investment Property – Obtaining An Investment Property Loan

While still searching for the property to buy, start researching about financing options. It would be a great idea to apply for a pre-approved mortgage loan so that when you find the property, financing is ready. A pre-approved loan also helps you asses your finances and gives you an idea of how much you can afford.

How To Buy Investment Property – Evaluating The Property and Doing The Numbers

Once you have a candidate property to invest in, check out the condition of the property. Note any repairs needed and the corresponding repair costs. Find out why the seller is selling it, check for any outstanding liens, how much the going rental rate is, and if there are current tenants still in the premises. Also ask about other expenses such as closing costs and agree on who is paying what.

Using the data you have gathered, do the numbers. Factoring in the costs and expenses, compute for your monthly cash flow. Also work out the maximum offer you can give to the seller, given all the data to ensure that you do not buy it overpriced.

How To Buy Investment Property – Negotiating An Offer

Having done all the research, evaluation and financing preparations, you are now ready to put your negotiating skills to the test. Be guided with your computed maximum offer. Beyond that amount, drop the deal and start looking for another one.

The best way to learn how to buy investment property is to do the actual thing, so start researching and securing a pre-approved loan immediately; after all, the scariest part is when you ink the contract that stamps finality.

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Too Much Good Bargains, Limited Funding

Real estate investors are licking their lips over the copious amonut of properties that are being sold at rock bottom prices. For a long time, prices have not been this low. In some areas, prices are not in their rock bottom position yet as they are still expected to nosedive even further this year. To buy these great bargains, the investor needs lenders who loan investment property funds so that he can expand his buying capacity. For real estate investors who already have multiple financed properties, however, it is disheartening to learn that many lenders have set upper limits to the number of properties granted a loan per investor. Is this a sign that they are now reluctant to loan investment property funds?

Fannie Mae Sets Restriction When They Loan Investment Property Funds

Fannie Mae has set the ceiling of providing financing for 10 properties only per borrower. This restriction was initiated by Fannie Mae and Freddie Mac when the value of real estate started plummeting. The original mandate was that they cannot loan investment property funding for an investor or borrower who own more than four properties. This number already includes his primary place of residence and a vacation house. It is a good thing that this guideline was modified and the ceiling was moved up to 10, still counting in the primary residence and a vacation house.

Fannie Mae though has not strictly imposed this specific ceiling to other lenders and have given them free hand over the particular limit that each lender wants to establish when granting loan for investment property.

Other Lenders Peg Lower Limit When They Loan Investment Property Financing

Despite the free rein given to them, the majority of mortgage lenders adhere to the more rigid original regulation. They loan investment property funding for a maximum of four properties. This limit is in force even if the investor has coughed up 20 to 25 percent for down payment. This is surely a letdown for many savvy investors who want to cash in on the buyers’ market.

Hard Money Lenders May Loan Investment Property Money Without A Cap

If you have used up the allocated number of properties for which you can get a traditional loan for, you may consider the unconventional source of funding. Select private money lenders who can loan investment property money even if you already have four or 10 properties under mortgage. However, take time to study their interest rates as they are notorious for charging hefty rates. Do your numbers and if their price works well with your figures then get that loan.

Traditional lenders loan investment property money, however they limit mortgage from four to 10 properties per borrower and this may be crippling to savvy real estate investors who have exceeded the cap but are looking to take advantage of the buyers’ market and expand their portfolio.

This brings us to the use of private money lenders to finance further purchases of rental property.  Private money lenders to target are those individuals with large IRA retirement accounts looking for a stable rate of return on their money backed by a tangible asset, such as real estate in this case.   Work with a real estate agent to help you pull lists of cash buyers in your target markets.  Now this will only be a partial list since many cash buyers find their properties in other ways than on the MLS .  Property transactions are public record so one can either do the research themselves or pay for service to provide the information.

Related articles

• 4 Ways To Source Investment Property Loans (buyfixandprofit.com)
• http://www.bankrate.com/finance/real-estate/5-tips-for-financing-investment-property-1.aspx
• Crossing Over From Real Estate Investing To Private Money Lending (buyfixandprofit.com)

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These days, getting funding for your handyman specials from hard money lenders are getting harder as their requirements become more rigid. Traditionally, getting funding from these private lenders was almost as swift as their speed of driving by the property involved in the deal for inspection.  At the present real estate climate, however, many of these lenders may check on the tax returns, bank statements and current pay slips of borrowers. For this reason, some REI’s may be seeking for other financial fountainheads to fund their deals. Usually in their search for alternative source, they give Federal Housing Administration’s 203K loans the brush-off.

Giving 203K Loans A Second Thought

Ever since the Department of Housing and Urban Development set down the moratorium on investor involvement in the 203k Rehabilitation Program, ethical REI’s avoid this loan program lest they be charged of mortgage fraud. But hold your horses! There can be some ways you can benefit from this financial reservoir.

3 Ways on How REI’s Can Dip Into The Financial Reservoir of 203K Loans

Despite the exclusion of investors to avail of 203k loans, it does not necessarily mean that you cannot use it to your advantage. It just takes a matter of expanding your context and thinking outside the box. Below are some ideas. You may be able to think of more.

1. This will not apply to all but will serve well for REI’s who are looking into buying and doing up their own homes. Well, this scenario is obvious. This is also applicable to REI’s who just recently bought their place of residence. It is expressed in the program that homebuyers who bought their property with cash within six months may refinance the house by availing of the 203k loan. It is as if the homebuyer bought the house through the said loan. If you are a recent homebuyer, you can claim a cash refund which is net of down payment and the closing cost that goes with obtaining a 203k loan. And presto! You can use the cash-back to fund one of your rehab projects.

2. Some resourceful REI’s also suggest to work around the provision that says that the loan can be utilized to refashion a single-family home into a double-, triple, or quadruple-family building. It is not clear whether these newly converted units can be rented out to tenants or not. A residential property which is also secondarily used for commercial purposes is also eligible for this loan. However, the commercial purposes seem to imply an office or store. In this case, it was not clear whether the owner must be the one occupying the commercial space or it can be rented out to other businesses. Probably, this may only apply to non-profit institutions which are also eligible for 203k loans. It is best to clarify these issues to avoid trouble.

3. This is applicable to any REI and is more of a “selling”, rather than a “buying”, strategy. You do not directly apply for a 203k loan so that you can buy and rehab the property, but you can help your buyer to avail of the government financing. As a consequence, you get to sell your property and you are freed from the trouble of rehabbing the property. It is akin to the ethical house flipping. Just make sure that you do not overprice and your buyer really has the wherewithal to pay back the mortgage. Your buyer gets to choose the color of the carpet and the paint and all other personal preferences he may have for his new dwelling. This means that you satisfy your buyer and with this, you could possibly get a referral to another homebuyer for your other fixer-uppers.

The Hurdles of 203K Loans

As with other government and bank loans, leveraging on this loan will encumber you with the red tape that rarely exist when dealing with private lenders, although it charges lower interest rates. The extra paperwork can snatch your time and speed in doing things so it would be great if you do not source financing from 203k loans often.

If you are running low on funds but have plenty of time to allocate for the processing of 203k loans, then you can consider the ways mentioned above on how you can use it for your REI business.