In today’s hot real estate market, there’s no shortage of real estate financing options, especially if you’re looking for short-term lending. However, not all real estate investment loans are created equal.
If you’re an investor, your financing needs are much different than the average home buyer’s. The financing product you choose can make or break the deal — and your profit margins.
So, which real estate financing route is best for real estate investors, flippers, and developers? Let’s look at some of the most popular options and see how they compare.
The top 5 real estate financing options for real estate investors
1. Conventional bank loans: Conventional bank loans are one of the most difficult real estate financing options to secure for investors. For investment properties, these loans require outstanding credit and a down payment of at least 30% of the home’s purchase price. Your personal income and assets must also be assessed.
These loans are a popular choice for investors who have the advantages of time, stellar credit, and available funds for a down payment because the interest rate and terms are usually favorable. However, conventional loans take several weeks to approve, and there’s a limit to how many you can have at one time. The lengthy and arduous application process, paired with the stringent requirements and down payment, make this option a non-starter for many investors.
2. Investor loans: Private investors tend to be incredibly flexible and open to rate and term negotiation. However, that flexibility generally comes with a fee. In general, investor loans usually have high interest rates. Plus, you actually have to know an investor who’s willing to take a risk on you and your property.
The flexibility of private investor loans make this option enticing to investors who find it difficult to secure traditional financing, but you may end up paying more out of pocket than you expect, particularly because you’ll need to hire a lawyer to draft a financial contract. Also, be wary of who you trust. Private investor deals can turn sour quickly, leaving you with more issues than you bargained for.
3. Leveraging current properties: If you already have equity in other properties, you have two options: a refinance loan and a Home Equity Line of Credit (HELOC). Both options allow you to leverage your earned equity to get cash in hand.
A refinance loan replaces your existing mortgage with a new loan and allows you to take out up to 80% of the home’s value in cash (if you get it appraised, you can sometimes take as much as 90% out).
A HELOC (also sometimes referred to as a second mortgage) allows you to borrow against your property’s equity in the form of a line of credit that is equal to your equity. The interest rates for a HELOC are lower than conventional financing but higher than refinancing. HELOCs can be tricky because they tend to have adjustable rates, making it challenging to pay off and keep track of.
Both options are worth considering if you already own property. However, keep in mind that either one will take a significant amount of time to complete, especially since they usually require an appraisal, so they aren’t ideal for quick cash in hand.
4. Construction loans: Construction loans are short-term loans for real estate financing, but they’re for investors and developers who purchase land and build on it.
Construction loans are similar to a line of credit in that you don’t get a lump sum of cash at the beginning. Instead, you receive the amount you need as you need it. This can be advantageous because you only borrow the amount you actually need.
However, construction loans are expected to be paid back promptly and often have higher variable interest rates than other real estate investment loans. In addition, they generally require a down payment and a credit check.
Underwriting for these types of loans can take anywhere from 60 days to a year to complete, so they aren’t fast-moving, which is akin to a death sentence in today’s real estate market.
5. The Cash Source: The Cash Source is an asset-based lender and a real estate financing option that allows investors to get cash in hand in fewer than five days, on average. With no credit check or mortgage limit, this short-term funding solution is ideal for investors who need to move quickly.
The Cash Source has competitive, transparent fees and rates, and saves investors an average of 50 days in wait time. Plus, payments are interest only—often resulting in lower monthly payments than conventional loan payments—and there’s no penalty for prepayment or breakage! While The Cash Source has a higher interest rate than traditional financing, it’s one of the best ways to get cash in hand quickly in today’s cash-hungry market.
How to select the best real estate financing option for your next property
The best financing option for you depends on a variety of factors. However, if you want to move fast and keep pace with today’s fast-moving, cash-motivated market, The Cash Source is a clear choice.
With The Cash Source, you get real estate financing faster than many of the alternatives. Plus, with no credit check and a hassle-free underwriting process, you can have cash in hand in mere days. There are no hidden fees, and applying is easy. Don’t lose out on your dream investment property because you don’t have the cash you need. Apply for a cash loan online with The Cash Source and start making offers today.