Financing Investment Properties: A Guide for Newbies

Investing in House

If you’ve dreamed of investing in real estate in Texas but hesitate to jump in because you’re not sure about financing, continue reading. Real estate investing is one of the safest pathways to financial freedom and long-term wealth building. Don’t let a lack of funding cause you to abandon the dream. By following this guide, you’ll learn a few basics designed to help new investors fund their real estate projects.

Stash That Cash

If you currently own the home you live in, unless you had down payment assistance, you brought cash to the closing table. Real estate investing also requires cash. Stockpiling cash should be the goal of any new real investor. The more money you put away, the less you need to borrow when you start talking to lenders for real estate investors. Also, even though you may be able to finance your projects, you’ll still need cash for renovations. Cash also gives you more options when looking for future investments. If you can make cash offers or have larger cash down payment than other investors, you can often beat out your competitors.

Credit Scores Matter

While your credit score won’t bear as much weight for investment financing as it did when you applied for the mortgage on your home, your credit rating still matters. Several factors influence financing terms on investment properties. For example, lenders look at the loan-to-value (LTV) ratio. Because investors pose a higher default risk than homeowners, investment lenders mitigate their risk by requiring lower LTVs. When you meet with investment lenders in Texas, you may find that they look more at the collateral than your borrower profile. That doesn’t mean you can ignore your credit score. A credit score is still an important part of the loan approval process.

Consider Short-Term Loans

Traditional home loans usually come with terms of 15 or 30 years. That’s why big banks and mortgage lenders aren’t always the best financing option for investors. You want financing that helps you secure a property, renovate it, and sell it. Private investors specialize in short term loans. The terms average around 12 months, but you can extend the loan period for 2-5 years. Most short-term loans require either interest-only payments or interest and principal. You’ll then have a balloon payment at the end of the loan term.

Calculating Loan Amount

Ask Family and Friends

Also known as private money lenders, individual investors are another excellent source of funding for newbie real estate investors. Look at your network of family and friends. You likely know someone who has money they’d like to invest. You can often find private investors among your co-workers. Participate in local real estate investing meetups. You may find a partner there as well. The key to private money is making sure you put together a great presentation for your project. Private lenders want to know they’re putting their money into a project with a well-thought-out plan.

Real estate investing doesn’t have to be intimidating. If you’re ready to take the next step and seek financing for your investment projects, you’ll want to work with the experts at Investor Loan Source. Start the application process at