Rent values for homes in the Las Vegas area surged almost 23% in July 2021 compared to last year. If you're looking to start or expand your real estate investment portfolio, now could be the time.
Getting investment property financing is a key step in the process. How are you going to get the financing you need?
You have several options for investment property loans. Learn more about 3 of the most common loans for investment properties as well as some alternative financing methods. You'll be in a better position to make your purchase.
1. Conventional Mortgage Loans
A conventional loan for an investment property can be a good option when you're starting your rental portfolio. The process is similar to financing for your primary residence. Several factors determine whether the lender approves your loan application and the interest rate you'll get. These factors include:
- Your personal credit score
- Credit history
The standards for investment property loans are higher than for a primary residence. You have to show that you can afford your existing mortgage(s) and the payments on an investment property. Interest rates are often higher for investment properties.
2. Hard Money Loans
A hard money loan can be a good choice if you're planning to renovate the property and put it back on the market quickly. A hard money loan can be easier and faster to get than a traditional loan. The lender bases loan approval more on the value of the investment property than on your income or credit score.
Interest rates for fix-and-flip loans are high. The time frame for repayment is usually short, sometimes less than a year. The fees and closing costs can be higher than for conventional financing.
3. Lines of Credit Against Your Other Properties
If you own your home or another investment property, you can use that equity to get a loan. Examples of ways to use your existing equity to get financing include:
- Home equity loan
- Home equity line of credit (HELOC)
- Cash-out refinance
Most banks, credit unions, and conventional mortgage lenders offer this type of financing.
Home equity loans typically require verification of your home's value, your income, and your credit score. The interest rates are usually competitive compared to other types of financing. If you're unable to make the payments, though, the lender can foreclose on your home.
Other Sources of Investment Property Financing
In addition to these three common types of loans for investment properties, other sources of financing are available. Local banks who keep their own portfolios can be good financing partners. They have experience evaluating loans in your area.
Online lenders who offer investment property loans can sometimes settle the loan faster than conventional mortgage lenders. Their technology can make the loan process easier. The interest rates and fees are usually similar to a conventional loan.
If you have a good track record in real estate investing, you may be able to get financing with pooled funds from private investors. Potential partners include friends and family, other real estate investors, and local business owners.
Successfully Financing and Managing Your Investment Property
You have several choices for investment property financing. Conventional mortgage loans, hard money loans, and home equity loans are common sources of funding. Other financing may be available depending on your situation.
Financing the purchase of your investment property is the first step. Successfully managing it ensures you continue to get the returns you expect from your investment.
Avalon Realty and Oaktree Management provides reliable, comprehensive property management services in the Las Vegas area. Contact us today for a consultation. Let us help you put your real estate investment strategy into action.