If you’re looking for a side hustle but don’t necessarily want the commitment of starting a business, real estate investing might be exactly the venture for you. You can determine how much of the work you do yourself, and, when done properly, you have the potential to make big profits.
But how do real estate investors fund their projects? What financing options are available, and which are best for which situations? Keep reading to learn everything you need to know.
Hard Money Loans
Many real estate investors favour hard money loans because they give them fast access to funding, making them a good option for deals you need to close fast (like an auction buy or a distressed property that has received a lot of interest).
The best hard money lenders can approve loan requests in a matter of days, but keep in mind that this lending option usually has higher interest rates compared to traditional loans.
Joint Ventures
If you’re brand new to real estate investing, working with someone with more experience is a smart move. This can be a good choice if you have the finances to invest but you don’t have the real-world experience to make the most profit-valuable decisions.
You might also pair with an investor who can provide another portion of the upfront cash required for a project, lessening the load for both of you. Or, you could work with someone who’s happy to fund the project as long as you manage all the DIY work involved.
Also, if you love the idea of earning through property but don’t want the stress of being hands-on, then this could actually be a great time to look into a managed property investment company to help you out with your investing goals. So, why bring a third party into this? Well, they can handle things like tenant management, maintenance, and the day-to-day running of the property, so you’re not glued to the project. Basically, it’s a more laid-back way of entering the market without feeling overwhelmed.
Buy-to-Let Mortgages
If you’re investing in property specifically to rent it out, take a look at buy-to-let mortgages. These offer better rates than standard home ownership mortgages, with some being interest-only, but keep in mind that they can only be used for properties you intend to rent out.
As with any loan, you’ll need to pay a buy-to-let mortgage back at the end of the loan agreement. You might do this by selling the property, using your savings, or agreeing on new mortgage terms.
Home Equity
If you’ve mortgaged your own home, you may be able to use the equity built into your property (the portion of your home’s value that you currently have) as leverage to fund your real estate project. Most real estate investors will consider this method for backing a home equity loan or a home equity line of credit.
The market value of your home will determine the amount of home equity you have. Once you make a down payment on your property, you have immediate equity. This will increase over time as you make mortgage payments. So, market depending, the longer you’ve owned your home, the more equity it’ll usually have.
Takeaway
Hopefully, you’ve learned a bit about your options for real estate investing in this guide. It’s definitely not something to rush into—do your research, read books, and speak to people who have successfully invested in property to determine whether this is the right business venture for you.