Buying an investment property can be a great way to add an extra source of income that can help you secure your financial future. Find out alternative ways to finance your investment property.
This week, we’d like to share a guest blog post about financing your real estate investment written by Accuplan Benefits Services.
Buying an investment property can be a great way to add an extra source of income that can help you secure your financial future. The rent checks that you receive each month can help you pay your student loans or give you extra money to put towards your retirement or other savings accounts. While there are many benefits to buying an income property, it may be difficult to get money from a bank or traditional lender, or maybe you just aren’t interested in going the traditional route. So, what are some alternative options worth looking at?
Peer-to-peer lending involves one individual who needs a loan and another individual or group of individuals who actually lend the money. In most cases, you are actually paying back the principal and interest to someone who may be trying to invest in real estate by funding your own investment. Interest rates may be comparable to or slightly higher than traditional mortgage rates for those with good credit and comparable to personal loans for those with average credit.
A self-directed IRA allows you to essentially be the custodian of your own retirement account. It means that you get to choose what you invest in with only a few limits placed on you by the IRS (no antiques, collectibles, certain types of metal, etc.). If you want to invest in a rental property or even invest in a property to flip, you can do so with funds from your IRA, that you control. This may be the best option for those who are using real estate income to save for their retirement and don’t need or want the profits today. If you have a self-directed 401K, you may be able to take out a loan for up to $50,000 to fund your next purchase, and interest rates on 401K loans can be as little as 2 percent.
Borrow From Hard Money Lenders
This may be the most expensive option available to those looking to finance the purchase of an investment property. However, it is also the loan with the shortest repayment term. Your goal is to find a property that is priced below market value, fix it and then rent or sell it as soon as possible.
If you decide to sell the property, you use the profits to repay your hard money lender and hopefully still have money left over for yourself. If you plan on renting the property, you get a mortgage after you fix it up and use the proceeds from the mortgage to pay the lender at the home’s appraised value after it has been rehabbed.It is important that you repay your hard money as soon as possible as interest is charged daily. Ideally, you will have the loan repaid within 30-60 days. While this puts you on a relatively strict timetable, it may be what you need to stay focused and finish your home rehab or flip project. Investing in real estate can offer returns that are higher than those of stocks or bonds.
However, you may have to get creative when it comes to finding money to make those purchases. Fortunately, there are a variety of individual or institutional investors who are willing to step in and make sure you have the money you need to buy the property that you want.
This article was brought to you by Accuplan Benefits Services, an IRA administrator specializing in helping you invest outside the stock market, and into real estate, precious metals, or joint ventures, all with your IRA or 401K.