Many are interested in beginning a career in real estate investment through owning rental properties but don’t know where to start. Considering funding strategies for the purchase of your first rental is the first step to creating a successful portfolio. Today we’ll explore those strategies.
Hard financing can be the way to go to get your foot in the door to get a good deal and if you are also going to rehab. After everything is complete then refinance and pay off the hard money lender.
Normal bank financing can be your best option if you have a buy and hold strategy. Note that local banks don’t have as strict of guidelines as the national banks. However in this type of scenario keep in mind that there is a limit to the number of investment properties. I primarily use a local bank; normally the loans I get are amortized over 20 years and reset every 3 to 5 years. Typically most investors put 20% down in this method of financing.
You can get a good deal this way and quick money. Usually the scenario here is that the private lender wants a percentage of the return.
Equity partners can be a good way to go if it is feasible for you to do. There are a few things to think about and have a game plan for such as: Split of rents and if you will buy out?
Something to consider is utilizing the proper funding source for your buy and hold strategy. Consider how long you plan on keeping each investment property and the best way to finance the property. Obviously you don’t want high interest rates associated with a property that you are holding for the long term. Make sure that you have a game plan for purchase, and the rental of the property then have a good exit strategy defined for each investment property.