If you find an investment property that is quite the right one for you, what you need is good financing. So with this perfect financing, one can purchase the investment property that will help generate steady income while you are paying the low rates and favorable terms of your loan provider.
There are inherent benefits and disadvantages when you want to take advantage of the current real estate boom and you want to borrow money to invest in. There are two thins important to borrowing money from the bank or from a private lending institution, and that is, potential property income and the borrower’s credit worthiness. The potential for making money is great. It only needs factoring all the costs into the deal and covering them with a nice profit so that the risks are justified.
Financial institutions like banks guideline is to lower the risk of default of a borrower by offering a low mortgage rate and extending long term loan on the market. When you loan in the bank, some other requirements that you need to comply with are a rigid down payment, income verifications and a good credit standing. With bank loans, however, it may take time for your loan to be approved so it can affect your deal with the property owner.
If you go to a private lender who has interest in making your property investment prosper, it will not be the same as how they do it in banks since banks have no interest in real estate but only the monetary interest rates they can get. With private lenders however, a lender must show the property’s income potential and not so much on the borrower’s credit worthiness. Their focus in on the property itself, which is why depending on the loan-to-value ratio, borrowers may need to cross-collateralize to obtain their full requested of their financial need. What is characteristic of private lender loans is that their interest rates are high, the terms are short, and the property is expected to have a high return on investment. The reason that private lending thrives despite the high interest rates and short term is because there are no lending requirements aside from the agreeing with the terms of the loan. With private lenders, you can secure a quick loan with less complex and less time consuming loan qualification process, and the fees they charge are less than what you pay with bank loans.
Today, you can find a specialty lending niche that is growing well in the fix and flip industry and that is transaction funding. So what the fix and flip investor will do is to invest in cheap real estate and using the poor property condition, rehabilitate the property to reach its highest potential market value. The fees for this type of loan are really high and they loan itself is short term.
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