Real Estate Investment Financing Options

There are a dozen or more real estate investment financing options. Lets review a few of the funding options.

For decades the general bare minimum rule for funding was 80-20: twenty percent (20%) down payment with eighty percent (80%) mortgage financing. Of course, there are many who work with a larger down payment.

Real Estate Investment Financing With Secondary Funding

Another common method of financing is to have more than one loan, usually in the form of a second mortgage. The buyer would provide a 5 percent down payment and borrow the other 15 percent on a separate loan, usually at a much higher interest rate and registered as a second mortgage on the property.

The downside to this method is not simply the higher interest rate, but the private mortgage insurance (PMI). Lenders almost always require private mortgage insurance since the buyer did not meet the minimum 20% down payment.

Note: It's possible to have the lender remove the PMI requirement after enough payments have been made. Once the loan(s) have been paid down so that the LTV (loan-to-value ratio) is at 80 percent — usually by a combination of paying down the second mortgage and appreciation of the value of the property. However, often before that happens, there has been a mortgage refinance loan registered or the property has sold.

Real Estate Investment Financing In A New Development

When considering property in a new development, such as a planned community or new housing tract, manufacturers will often be willing to finance for early buyers. Such mortgages are frequently available with only 5 percent of the purchase price as down payment.

For the really daring it's possible to 'buy' a property, then sell it, without ever really owning it. A contract is established, and then sold for anywhere from $500-$5,000 without ever taking possession or even being on the title. Profits are usually smaller, but obtained quicker. Excellent credit is required.

'Sub2' Deals Are Another Form Of Real Estate Investment Financing

A typical 'subject-to' deal involves having a seller deed you the property while leaving the existing mortgage in place. You never legally assume the loan, but simply start making the payments. There are lots of variations on this way of buying property. Definitely not recommended for the beginner Investor.

Real Estate Investment Financing With A Limited Partnership.

Arrangements for a limited partnership cover the spectrum. In some, each partner puts up some percentage of the cost, usually half and half. Profit is apportioned according the original percent invested. In some cases, one partner invests money, while the other(s) performs services —— such as repairs on a 'fixer-upper'. The deals are as varied as people.

Investment Financing For Low Income Or Military Service

For those with low incomes, or military service, or other special circumstances there are various government loan programs available. These government programs are usually limited to individuals intending to occupy the property.

Real Estate Investment Financing With Credit Cards

It's even possible to fund a property purchase with credit cards, but there are several obvious downsides to this method. Apart from the substantially higher interest rates, lenders will look at all outstanding debt when deciding whether to grant a mortgage/loan on the remaining balance. By taking a cash advance to cover the shortfall between the needed 5-20 percent down you will usually get turned down.

Financing Through Family Or Friends

Friends, family, and other sources of money are usually viewed the same way as credit card financing unless you can prove to the bank that the money is a gift and not just a loan. (And the Lenders definitely want proof!)

If you base what you do on inaccurate information, you might be unpleasantly surprised by the consequences. Make sure you get the whole story from informed sources.

More about real estate investment financing here.

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