The Do’s and Don’ts of Investor Loans

Do you know what’s nice? Having a little extra money after bills at the end of the month to spend on yourself. The problem is that expenses usually drain your bank account.

You can pick up a second job or start a side hustle. Many people invest in real estate to fit this purpose. It makes a good side job that you can turn into a lucrative full-time one if you’re good at it.

The problem is that it can be expensive to get into. Most people can’t do it without investor loans. There are plenty of wrong and right ways to go about getting one.

Keep reading to learn more about getting the finances together for your first property endeavor.

What Are Investor Loans?

The most important thing about dabbling in this career field is staying knowledgeable. To this end, you need to know what investment property loans are because you’re going to be using them a lot. This is especially true when you’re first starting.

As the name suggests, it’s a loan that you can take out to purchase a piece of real estate. These loans fall into two general categories.

The first involves buying an old building with the plans of fixing it up and either selling it or renting it out. The second category is all about buying a new building.

You can either go in on commercial or residential structures. There’s only one thing that you need to keep in mind. Banks are a little picky about who they give these loans to.

The reason being is that they’re a lot higher risk than home loans since you’re not going to be living at the property.

Learn About Your Options 

Before you start taking advantage of the benefits of investor loans, you should take some time to find out what your options are. They usually fall into three categories.

These are hard money loans, conventional loans, and home equity loans. As you’ll see, they all come with their own pros and cons. One that might be right for one investor may not be right for you.

Hard Money Loans

If you’re planning to make your living flipping houses, your best bet is most likely hard money loans. They’re often meant to be short-term, but you might be able to work something out with the loan company.

They tend to be a little laxer when it comes to these types of loans. This is because they’re more focused on the building you intend to flip than your portfolio. If the building comes with a lucrative return investment, they’ll be all over it.

If the return investment isn’t that much, they may still let you borrow, but it won’t be near as much as you could have gotten. Another thing to consider is the monthly payments.

You’ll be met with harsher consequences in the form of expensive late fees if you can’t make your monthly payments on time.

Conventional Loans

Conventional loans might be the hardest ones to get. You’ll have to have an excellent credit score and be able to put down a large downpayment to be able to qualify for it.

Even with these strict stipulations, it’s not a bad idea to give it a try. Conventional loans are mortgage loans that aren’t regulated by the government.

There are two different types of conventional loans. These are conforming and non-conforming. Conforming has rules and stipulations set aside by the National Mortgage Association.

Most conforming lenders have the same criteria across the board, so you’ll know what type of credit score and downpayment you’re looking at to get one. Since lenders will be selling your conventional loan to an organization within the Mortgage Association, they’re usually a little more flexible when it comes to handing out conventional loans. You’ll be in for a lower interest rate as well.

If you can’t put forth a huge downpayment, you may have to go the non-conforming route. These loans don’t meet the standards laid out by the Mortgage Association.

Not only will you not need a large downpayment to get one of these loans, but you may also be able to borrow more. There’s a good possibility that can get a non-conforming loan, even if your credit score has taken a hit or two. You’ll have access to more types of property, as well.

Home Equity Loans

If you own a home of your own, you might be able to use it to finance your other real estate prospects. You see, over the years, your home builds up something called equity. You can cash in this equity to get a loan for other things that you need.

If approved for it, you’ll get one lump sum of money. Like any type of loan, you’ll have to pay back what you borrow, but the interest rates are pretty competitive compared to your other options. There’s also a chance that you won’t have to pay any down payments or other upfront costs.

Like with anything, there is a downside. To get a home equity loan, you’ve got to put your home up for collateral. This means that if you can’t pay back the loan, you’ll lose your house.

Most lenders also put a limit on how how much you can borrow. So, you might be able to get a bit more if you go with a conventional or hard money loan.

Go In on a Partnership

If you’re struggling to pay for your first property, don’t feel bad. This happens to a lot of people. Instead of letting it get you down and throwing in the towel, find someone to partner up with.

They might be able to act as a cosigner, which will help with getting a loan. You can split whatever profits you gain from the property with each other.

To avoid arguments later, make sure that you write up a detailed contract that highlights both your responsibilities in the partnership and accounts for both your different management styles.

Do Some Research 

Now that you know about your loan options, it’s time to get started on your homework. You’re going to be sinking a lot of money in your real estate properties. You don’t want to hurt your piggy bank by being underprepared.

First of all, you want to go in with some real estate knowledge under your belt. You don’t have to go to school for it or anything, but you should at least do a quick Google search to learn some of the common terminologies.

Once you know more about the market and what you’re getting yourself into, it’s time to start looking around for properties. This sadly involves even more research.

Perform an Analysis 

So, after looking around for a while, you’ve found a property that you like. Time to open up negotiations with lenders to get a loan to buy it, right?

You might want to pump the breaks on that decision until you’ve done a market analysis. All it takes is one investment mistake to ruin your career before it starts.

First, take a look around the area. Properties located in cities do a little better than those in rural locations. This is because there are more amenities for homeowners to look forward to and there are a lot of job opportunities in the big city.

Where there are jobs, there are people who will need homes close to work. Look at other houses that have sold in the area where your building is.

What kind of features did these places have? If they have some of the same perks that your building has, you might be able to sell it for around the same kind of price.

Learn About Your Property Options

When it comes to buying and flipping houses, you’ve got plenty of options out there. You could make your living renting out single-family homes or put your eggs in the condo basket.

Single-Family

As the name suggests, single-family properties are meant to house a small family. Real estate investors eat up these places because the land isn’t too expensive. Most single-family properties are found right outside of a city in suburban areas.

This makes them easy for homebuyers to afford, so they’re high in demand. If you start investing your funds into these properties, you’ll probably make back what you spend and then some. This makes them easy to get a loan for.

Multi-Family

Multi-family homes are a lot larger than single-family homes, making them tougher on a homebuyer’s wallet. If you invest in one of these properties, you’ll still make money off it, but it might take a while due to the expense.

This makes them harder to finance. Even if you can get a loan for the building, you may find it difficult to pay it back because you’re waiting on someone to snatch up the property.

Condos

Condos are basically nice apartments that you get a mortgage and pay for rather than paying a monthly rent. If something goes wrong as far as maintenance goes, the owner will have to get it fixed instead of the landlord.

Many first-time homebuyers will go for a condo because they’re a little cheaper than getting a mortgage on a house. They’re smaller than houses, so there’s less maintenance involved with having one, as well.

Have a Goal in Mind 

Again, getting real estate loans and purchasing property is an expensive endeavor. You don’t want to go into it without having a goal in front of you.

You can make a lot of money in this field if you’re willing to put in the work. Depending on how many houses you sell, you can take it from a part-time job to a full-on career.

Think about how much money you want to make in a month or year and begin working toward that goal. Once you do that, look at your own financial situation.

Investing in real estate shouldn’t hurt your own living situation. You might have to make it your goal to get some more cash in your wallet before you get started. Paying off your debts is a great way to start.

Don’t Go For a Fixer-Upper Right Away 

There’s a lot of merit in house flipping. You put in a small investment, buy a house for cheap, and then make double the profits after you fix it up and sell it.

This being said, the upfront cost to do this can be kind of high. It might be better for you to sell a few houses to prepare yourself before taking on such a huge project.

Get Your Credit in Shape

Before you head to the bank to take out a loan, check your credit score. If it’s less than stellar, you might not be able to get a loan, but not to worry. That only means you’ll have to take a year or so to improve your score before you talk to a lender.

Start by paying off your debts. We understand that this is easier said than done. Depending on your situation, you might be able to consolidate some of your loans, which will make them easier to manage.

Understanding the Dos and Don’ts of Investor Loans 

Are you looking for an awesome side job or wanting to switch career paths? You can make a decent living by getting into real estate investment.

The only setback is that it can be expensive to get started. Most people can’t do it without taking out investor loans.

There are a lot of dos and don’ts that you’ve got to consider before talking to a lender.  We hope that reading this article has helped clear things up. If you’re looking for more ways to grow your real estate business, visit our blog!

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