When financing real estate with a comfortable amount of capital on hand, investors should pursue loans through local banks which offer greater flexibility than larger financial institutions. For investors with minimal capital or sub-standard credit, hard money lenders and government-subsidized loans are the strongest available options. Investors who hope to invest in foreign real estate should be prepared to research the prospective location extensively before leaving money on the table.
What Are Some Tips for Financing Real Estate for Novices?
Real-estate investing is an exciting opportunity for investors who want to cultivate a passive income stream or save for retirement; however, if you want to pursue an opportunity in real estate, it is essential to be aware of the industries landscape and approach any opportunity with a few basic principles in mind. To that end, we have provided a few basic tips below, all of which are essential for the novice real estate investor.
Protect Your Viability as a Borrower
Although there are methods to circumnavigate traditional lending mechanisms, you will be best positioned to secure funding and property if all available options remain on the table. In order to maximize your borrowing options, you must have a credit score above 740. With a score below 740, banks will often charge higher interest rates for a loan of the same amount. You have the option to pay a fee to borrow at the same interest rate, but, regardless it is best to keep a close eye on your credit and do whatever you can to keep it above 740.
Make as Large a Down-Payment as You Can
There are a number of options for investors with minimal capital to put down, many of which we will elucidate below; however, it is best to pay as much upfront as you can because a substantial down-payment will mitigate long-term interest costs and secure a greater portfolio of presently held assets. While a large down-payment is wise, avoid paying an amount that leaves you with little working capital with which to invest in the newly acquired property. Error on the large side, but keep enough working capital to address any potential issues.
Use Local Banking Institutions
As you search for borrowing options, speak with a loan officer at a local bank or credit union before you resort to larger banks. This is an important principle because local institutions offer greater flexibility to borrowers than nationwide banks, a difference that could save any real estate investor a substantial sum in the long-term.
Can You Finance Real Estate with No Money Down?
If you aspire to invest in real estate but have little money to put toward a down-payment, there are options available to you, though these options are more limited than those available to investors with the capital to make a down-payment.
Consider a Hard Money Lender
Hard money lenders are more costly than traditional lending institutions in terms of interest rates, but they reflect the most prevalent option for investors with low credit scores, minimal capital to invest up-front, or both. Hard money lenders are able to furnish funding by considering the value of the assets held by the investor as opposed to the credit and liquid capital associated with the investor. Rates differ substantially from one hard money lender to the next so do your research before selecting any particular lender.
Utilize Government-Subsidized Loans
The Federal Housing Administration (FHA) offers government-subsidized loans for homes in demarcated areas or homes that need some degree of repair at preferential rates to investors with less than stellar financial histories. In some cases, these loans may include the cost of necessary repair making FHA loans a strong opportunity for investment if you have no capital to use up-front.
How Do You Get Started Financing Real Estate in Foreign Countries?
Investing in real estate in foreign countries is a great way to diversify an investment portfolio and thereby insult yourself from fluctuations in the housing market in the United States. That being said, financing real estate differs dramatically from one country to the next, so aspiring investors will need to learn as much as they can about the country in which they plan to own property.
Be Aware of Cultural Factors
It is highly inadvisable to invest in real estate in a country with which you are not familiar. Before investing in real estate in any particular country, you should spend some time learning about the country’s geography, local customs, and any other factors that may impact the value of your investment.
Do Your Research
Once you have elected to invest in real estate in a foreign country based on a knowledge of the location in which you are interested, you have only begun the necessary research. You should be scrupulous in your analysis of the relevant country’s legal system, any available funding options, and how the investment stands to impact your tax situation in both the United States and the country in which you plan to own property.
Scale-up with Caution
Regardless of how lucrative a foreign real estate investment seems, you should begin with a small investment which will provide you with valuable experience doing business in your new market before expanding on your current assets in the country. With some knowledge of how the foreign business community operates, you will be in a strong position to scale up slowly, adding to your assets.