Real Estate Investing has become the hot trend across our country and is gaining popularity. There are many benefits to Real Estate Investing like Cashflow, Market Appreciation, Equity Capture, Tax Advantages (Depreciation), and Principal Pay Down.
Financing options have increased over the last few years with more coming to the market daily. Knowing how and when to use these products effectively is key to investing success. These loans are as follows: Private, Hard Money, Conventional, Bank Portfolio, Securitized.
Every successful investor needs access to private funds. Private funds are the fastest and most flexible. They are best for unique situations. Private money can be used for 100 percent of the Loan to Cost amount and for any property condition. Funds may be limited.
Maximize leverage with hard money loans. This is a short-term loan based on After Repaired Value. This loan type is ideal for properties that are not financeable through traditional sources. Commonly used for Fix and Flip situations and Rehab to Rent, but they require two closings. This loan will finance any property condition and unlimited funds. Currently, these loans are provided for up to 100 percent Loan to Cost (LTC) and 70-75 percent of After Repaired Value (ARV)
These loans offer best rates and are fully amortizing. Usually, these loans require excellent credit and income documentation. Property condition must be without deferred maintenance. Typically, 20 percent down is required for a purchase and 25 percent down is required for refinances. These loans are available for up to 10 financed properties. And, you must close these loans in a personal name.
Simply, a loan that the bank keeps in their portfolio. If the loan makes sense as an investment, they will do it. With this type of loan, banks can overlook changes in job or other financial situations that would be a problem for conventional loans. Portfolio loans can be a single asset or a multi asset/blanket loan. Guidance Lines of Credit (GLOCs) may be set up for acquisitions or rental loan packages. Banks underwrite a borrower one time to a limit. These loans may be for up to 90 percent LTC, not to exceed 75-80 percent of value.
These loans are securitized typically as a package of loans to investors expecting a certain return. Typically, they have a prepayment period of 3-5 years with the option of type of prepay. Be sure to understand before entering this type of loan. They can be declining prepay 3-2-1 or possibly yield Maintenance of Defeasance that can be very expensive. These loans are useful as another source for long-term financing with easier qualifying terms when it comes to credit and borrower income. Many times, these are qualitied based on the independent cashflow of the underlying collateral.
Knowing the different financing options available will open more possibilities to investors that many people believe are not possible. Many people speak to one banker and are told that they can do a certain loan and their growth and continued success is limited. A lender only sells what he must sell. Continue to look for different money sources as you look for investment properties. Then, if you find a property, you’ll have the money.
Wealth through Real Estate is nothing but a financing game .