Everything You Should Know About Real Estate Financing
A good real estate investment strategy can help you leverage real estate potential. To do that, you need to have detailed knowledge about real estate financing.
Among the investors’ fraternity, real estate investment is a great option. It helps investors to diversify their investment portfolios. If you are a beginner, it is advisable to learn about all its aspects and then step into the game. After getting a basic understanding, you can earn a surplus with the assistance of real estate finance services in the USA.
What is Real Estate Financing?
Real estate financing is a broad term used to describe various financial methods used by potential investors. The prime reason investors use real estate financing is to secure their capital investment. Generally, the investors secure their capital from an outside source to purchase and renovate the property.
Remember, lending and borrowing money is a liability for both the stakeholders – the lender and the borrower.
Types of Real Estate Investment Loans
It costs a lot to buy a property in today’s day and age. People usually believe that it requires heavy capital to get started, which is not true. There are several investment options available to purchase a property. Let’s see the best real estate investment loans in the USA.
Bank loans are among the most preferred choices for real estate investment loans among investors. It is a common process to take bank loans and repay EMIs. Usually, banks offer 60 to 90% of the property’s total value as a principal amount. The remaining amount is repaid in a down payment.
The greatest advantage that a traditional bank account holds is that it has a long tenure for repayment, around 20 to 25 years, depending on the bank. Bank loans allow the flexibility to repay loan amounts in EMIs for a longer period. Also, throughout the loan period, property value tends to increase. Thus, the borrower enjoys massive gains. Bank loans can be the best of all investment options because they have low-interest rates and minimal processing fees.
Fix & Flip Lending
Fix & flip are short-term loans to purchase a real estate property. Fix & flip lending helps an investor purchase a property, refurbish it, add some value to it and then sell it at a surplus. The complete process of purchasing a property, refurbishment, and selling, usually takes 12 to 18 months. However, fix & flip loans can be icing on the cake if borrowed from the best real estate lenders in the USA.
The common use case of fix & flip loans is purchasing residential property at an auction or a foreclosure event.
Real Estate Investment Trusts (REITs)
REITs allow potential investors to invest in real estate properties. Investors need to buy shares via a broker to invest in REITs. These are a type of securities linked to real estate that is traded on a stock exchange after their listing. REITs own real estate in various sectors. In addition, the investors have the opportunity to earn from dividends.
A mortgage loan is secured by collateral. If not willing to pay with cash, the investors can apply for a mortgage. The investors can use the mortgage to get funds from the bank and use the same to purchase the property. The mortgage loan also adds a safety net for the lenders as the mortgage acts as a security if the borrower turns bankrupt and fails to pay back the loan amount.
Please make sure to get a mortgage loan from the best of all real estate investment lenders to avoid any future loan repayment problems.
Hard Money Loan
If you do not have a good enough credit score to borrow a loan from the bank, a hard money loan can be the best option for you. Private lenders provide hard money loans for a shorter period. Moreover, the hard money loans are backed by the property’s value which is beneficial for the lender. And, indirectly, you are not liable for the loan repayment. Also, a hard money loan gets you funding really quick!
If still, you are not willing to choose any of the aforementioned real estate investment loans in the USA. You can consider getting investment from mortgage bankers, brokers, or other financial institutions.
Why Should You Consider Real Estate Financing?
Let’s understand why real estate financing is the best option and why you should consider it?
Better ROI (Return on Investment)
Some real estate investment options allow you better return on your investment, such as fix & flip loans and mortgage loans. Using debt to purchase a property significantly increases the return on investment.
Investing in real estate is considered less risky than investing in stocks. This is because your investment does not get locked up while choosing the real estate financing option. Hence it ensures lesser risk.
Ownership Stakes Stay with You
Whenever you finance a property, you bring in additional business partners who would invest in return for the ownership stake in the property. Real estate financing ensures that the ownership stakes of the property stay with you only.
Improves Your Credit Score
One of the greatest benefits of getting a hard money loan ( a part of real estate financing) is that it does not affect your credit score. So till the time you do not have any bankruptcies on your report, you are good to take a loan and finance the property for investment.
Anyone can Fully Finance a Property
Whenever you want to raise capital for investment, it becomes a little difficult to convince the investors. But with real estate financing, you can easily get a loan from a bank or a hard money lender.
Real estate will never lose its demand. So it would be best if you were quick to invest in a property. But the important thing is to choose the right property and most genuine of all real estate investment lenders.