Owning rental property is one of the best ways of earning monthly passive income. It’s not unusual to hear stories about millionaires owning dozens of rental properties in their area or throughout the country. They know that having a portfolio of rental properties is an easy way to increase their wealth. It doesn’t take a
Owning rental property is one of the best ways of earning monthly passive income. It’s not unusual to hear stories about millionaires owning dozens of rental properties in their area or throughout the country. They know that having a portfolio of rental properties is an easy way to increase their wealth.
It doesn’t take a rocket scientist to see that owning rental properties is amazing. However, buying them can be a big obstacle for some aspiring real estate investors. Fortunately, you don’t have to visit your bank or credit union to get a conventional loan for your properties. This is great news for anyone who has limited funds or poor credit.
We will now cover four creative ways to finance a rental property purchase. They are simple, but they are extremely effective. Please keep in mind that these techniques are used by seasoned real estate investors that have been in the game for years. Let’s get things underway.
Private money is a personal loan from anyone who will lend it to you. You can get a private loan from a family member, a close friend, or a business associate. Your credibility will decide if someone will be willing to fund your rental property.
Filling out paperwork and going through a credit check is the norm at banks. Private money is great because you don’t have to fill out tons of paperwork and undergo a credit check. Your potential private money lenders will be looking at your credibility and the property.
Getting private money is a better option, but you must be willing to pay a higher interest rate. This is a tidy price to pay for the funding. The interest rate for a private real estate loan can start at 3% and go up to 9%.
What should you do if your relative or friends are not willing to give you a private loan? You should start looking for private money lenders in real estate magazines and major newspapers. If you don’t see any ads that appeal to you, you can create one.
Here’s an example:
Private lender needed
Willing to pay a high interest rate
Contact me at XXX-XXX-XXXX (Your phone number)
Did you know that many real estate moguls use partnerships to buy rental properties? Getting a partner is another great idea that can help you build up your rental property portfolio. This option is ideal if you know someone who’s interested in real estate investing, but they are not too keen about getting involved in the day-to-day operations. For example, they are not interested in collecting the rent. Asking around is the best way to get a solid partner for the acquisition.
Your partner will put up the money, and you will handle the tasks associated with being a landlord. Agreeing on the proceeds or the split is the key to making partnerships work. Make sure that the split reflects your contribution to the project.
Owner financing is where you ask the homeowner to be the bank. The homeowner will hold a note against the property. You will be responsible for making monthly payments to the homeowner. You will also be responsible for paying interest on the note.
Owner financing is an easy way to get the property if the homeowner can afford to hold the note. You and the owner must negotiate the following terms: monthly payment, down payment, interest rate, due date, and other fine details.
It’s important to point out that you should avoid pursuing owner financing if there is a non-assignable mortgage on the property. If the lender finds out that the owner extended owner financing to you, this will trigger the “due on sale” clause. When this happens, the lender will force the owner to pay the loan in full.
Make sure you do your due diligence on the property before you ask the owner if they would be interested in doing an owner financing deal. Your due diligence will help you avoid potential problems down the road.
Hard Money Loans
A hard money loan is where you get a loan from a private person or business. A hard money loan is similar to a private money loan, but it comes with less flexible terms. Hard money loans are popular because they make it easy for investors to buy rental properties.
Here are the benefits of getting a hard money loan: credit references are not required, the deal will be funded in several days, your income is not an issue, the loan is based on the after repaired value, and your rehab costs are added to the loan.
As you can see, hard money loans offer many advantages. However, there are some drawbacks to getting a hard money loan. The interest rate is pretty high (10% – 18%), the loan will be due within several months, and you will be responsible for paying extra loan fees.
Please remember that a hard money loan must be repaid within several months. You must be ready to refinance before the loan is due.
You can find hard money lenders throughout the country. You can find them online, in the yellow pages, and in real estate publications.
Acquiring rental property is a sure-fire way of earning dependable passive income. Contrary to popular belief, you don’t have to get a loan from a bank or credit union to buy rental property. Getting financing for your rental properties will never be a big challenge if you use the creative financing techniques listed above.