Despite the looming recession and rising inflation, real estate remains a profitable investment. In 2021, home prices rose due to the work-from-home economy. This forced many people to move out of high-cost neighborhoods and start working remotely. Many predict that this trend will continue for several years.
Interested in real estate investing? If you’ve no idea where to get started, then you’ve come to the right place. In this post, we offer easy steps for investing in real estate that include beginner-friendly strategies, advice, and tips. Remember, real estate investment is all about location and access to capital.
Fix and Flip Loans
House flipping is a lucrative business, but it comes with several risks. This is true, especially for beginners. One of the risks is financing. Flipping takes much more money than it does to buy a home you want to live in. This is because you’ll need funds to purchase the property, make renovations, cover utilities, property taxes, and others. In fact, you’ll need to do this from the day the sale closes through the renovations and until you sell the property.
If you have no cash to invest in your flipping business, you can always get a fix and flip loan. This is a short-term loan - 12 to 18 months - and starts from $50,000. Unlike conventional loans, fix and flip loans look at the after repair value and the property’s price. As such, they can lend up to 90% of the purchase price, and not more than 85% of the after repair value. Rates start from 7.5%.
Hard Money Loans
This is another short-term loan that provides funds until the property is sold or the investor secures another form of funding. Similar to fix and flip loans, hard money loans get approved in as little as seven days. This allows flippers to move quickly on a property. As such, they take advantage of the market and stay ahead of their competitors.
With hard money lenders, real estate investors can get the funds needed to purchase and renovate a house with little upfront costs. As such, hard money loans are slightly better options for the fix and flip investors.
However, interest rates for hard money loans are higher than for conventional loans. This means, if you’re unable to complete repairs on your flip in time (6 to 18 months), then you could be stuck paying high-interest rates. Alternatively, you could walk away with nothing.
Private Individual Lender
Real estate investors can also get funding from private individual lenders. Private lenders operate outside traditional financial institutions. They usually lend money to people who increase their investment’s value.
Unlike traditional financial institutions, private individual lenders are flexible. They have less stringent requirements. In fact, they lend quickly if they see you as a good investment. By doing so, you get to reap lots of benefits. So, if you don’t qualify for the traditional mortgage, then funds from a private individual lender will help you realize your dream.
Remember, the interest rates of a private individual lender tends to be higher than those of a bank. This is because they take on credit risks that banks and other lending institutions are unwilling to take. In addition, you’ve to do a lot of networking to receive funds from private individual lenders.
Besides taking loans, you could fund your real estate investments with cash. Basically, you can pay full price for the property. For this to be possible, you must have the necessary resources.
When you pay upfront, it improves your opportunity to finance your real estate investments. This is because the question of financing is usually removed from the seller’s mind. Paying for your real estate investments in cash allows you to enjoy discounts and other benefits.
Unlike real estate investors who finance their investments with loans, paying cash saves you money. How you may ask. It saves money in interest expenses. All in all, paying in cash provides stability and security.
Which Is the Best Option?
Well, two factors determine which of the financing options above are ideal for you. One of those factors is your goals for your property, and the other is your financial situation. With cash, fix and flip loans and funds from private individual lenders, you enjoy lots of flexibility and quick financing. However, if you’re in the flipping business, a fix and flip loan is the better option.