Real estate investing offers a variety of great ways to generate a profit, but if your ambition is to increase wealth over the long term and eventually quit your job, it's vital to start building a portfolio of cash flowing investment real estate. The "normal" way to finance the growth of an investment property portfolio is via traditional Fannie Mae financing because it offers good rates and long loan terms. However, though a traditional bank loan is great for holding rentals long term, it isn't always the optimal way to get into a deal.
Now don't get me wrong, numerous real estate investors have built up immense portfolios of real estate by saving up down payments and financing their deals with a traditional bank loans. The problem is that if you have modest investment capital, you are likely to exhaust your money well before you accomplish your objectives. Banks today are looking for minimum 20% down, but you'll need even more money if you want the best rates and lowest fees.
If you have limited cash, the ideal way to grow an investment property portfolio is to seek value investments - much like how Warren Buffett buys stocks. You're not looking for the stunning, fixed up properties that cost a premium, you are searching for the unsightly, smelly, gross houses that nobody else wants. The objective is find houses that you can obtain, fix up, and finance for 70% of the after repair value, or ARV.
A traditional bank generally will not want to lend on a building that's not in good condition, so you'll want to search out hard money or private funds to finance these kinds of deals. Yes, you are likely to pay higher rates and costs, but it's just the way it works. Think of it as a cost of doing business and account for these costs in your offers. If you are buying for prices that permit you to acquire, fix up, and finance for 70% of ARV or less, you should have little trouble getting these types of lenders to finance your deals - and often with little or no money out of your pocket.
If you've structured your deal properly and have at least a 20% or 30% equity position in it once it's completely rehabbed, you can easily refinance the hard money loan into a permanent bank loan and easily meet the equity requirements associated with an investment property loan from a traditional bank.
Now don't get me wrong, an investment property bank loan isn't just about a 20% or 30% equity position. Good credit, reserves, income, etc., all still play a role to get you qualified. But if limited cash is your issue, buying value properties with built-in upside will substantially accelerate the expansion of your business.
Now don't get me wrong, numerous real estate investors have built up immense portfolios of real estate by saving up down payments and financing their deals with a traditional bank loans. The problem is that if you have modest investment capital, you are likely to exhaust your money well before you accomplish your objectives. Banks today are looking for minimum 20% down, but you'll need even more money if you want the best rates and lowest fees.
If you have limited cash, the ideal way to grow an investment property portfolio is to seek value investments - much like how Warren Buffett buys stocks. You're not looking for the stunning, fixed up properties that cost a premium, you are searching for the unsightly, smelly, gross houses that nobody else wants. The objective is find houses that you can obtain, fix up, and finance for 70% of the after repair value, or ARV.
A traditional bank generally will not want to lend on a building that's not in good condition, so you'll want to search out hard money or private funds to finance these kinds of deals. Yes, you are likely to pay higher rates and costs, but it's just the way it works. Think of it as a cost of doing business and account for these costs in your offers. If you are buying for prices that permit you to acquire, fix up, and finance for 70% of ARV or less, you should have little trouble getting these types of lenders to finance your deals - and often with little or no money out of your pocket.
If you've structured your deal properly and have at least a 20% or 30% equity position in it once it's completely rehabbed, you can easily refinance the hard money loan into a permanent bank loan and easily meet the equity requirements associated with an investment property loan from a traditional bank.
Now don't get me wrong, an investment property bank loan isn't just about a 20% or 30% equity position. Good credit, reserves, income, etc., all still play a role to get you qualified. But if limited cash is your issue, buying value properties with built-in upside will substantially accelerate the expansion of your business.
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