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Creative Ways to Finance an Investment Property

Whether you want to buy a house and flip it or you want to buy and rent an apartment complex, there are a few different choices out there, aside from just paying cash for financing your investment property. Cash and traditional loans are probably the easiest and most well known ways to go about financing any kind of property, but there are others. Instead of opting for the bank, mortgage, credit union loan route, try one of these other options for finding the funds you need to purchase your investment property. Basically, any method of financing that is not under the traditional method is considered creative financing.

Seller Carry Back

Seller carry back is a method that uses owner financing. The name comes from the fact that the seller carries a note of purchase. Basically, you pay them monthly, usually within a certain time limit until it is paid off. This is generally done when someone owns their home completely, nothing due on it, and they just want to let go of it and are not concerned about having all of the money up front. The pay off on this type of financing is generally no more than five years. This method of financing also keeps you from needing to obtain a purchase loan, although it will require refinancing at some point.

Subject-to

Subject-to comes from the fact that the existing financing stays in place; the title of the home is transferred to the buyers name while the loan remains in the name of the seller. The buyer then makes payments directly to the seller. This is considered to be a quick investment, mainly because the seller will not want to keep their name on the loan for a long amount of time. This method saves the buyer from needing to save up a down payment on the investment property. After six months, the buyers can simply refinance in their own name.

Seller Second

Seller second is one of the most popular ways of financing an investment property. The name does exactly what it implies; the seller is on the second mortgage. The idea is to have enough money to cover what would be the cost of the down payment that is needed on the investment property. They key to making this way of financing work is to know how much of a down payment you will need for your loan. Then, the seller would carry a note for that amount. This way the property is yours without any money on hand and the seller gets a deal and the bulk of their equity.

Private Loan

A private loan is different than a traditional loan, since it comes from somewhere other than a financial institution. Private loans can come from friends or family, colleagues, or any other person that understands your vision and has the funds to make your dreams come true. This option would require a promissory note to be signed, which would contain all of the loan details including the loan amount, interest rate and the terms. A private lender is someone willing to take a risk, which means they may also charge you for that risk with a higher interest rate. If it is someone that knows and trusts you they may be willing to offer a lower interest rate. Interest rates aside, private loans allow you to get the money you need in a fast way without a large number of hoops to jump through.

Consortium

Co-owning through a consortium could be the answer to your creative financing needs.  Find other individuals that want to work with you, under an LLC, and make the purchase together, pooling your funds. This might not be the right financing tool for everyone, since you will be sharing your investment property with others, but it offers up a better option for getting the money you need to make the purchase. Using the LLC allows you to immediately start making revenue once you have your investment property ready to rent.

These are all great alternatives to a traditional loan for obtaining your income property, and they help you avoid the possibility of paying larger interest rates on your income property. Many banks and credit unions are strict now when it comes down to loan requests. It can be difficult to get a loan, especially towards an income property. The interest rates can vary greatly, sometimes reaching numbers that you never thought possible.  You also lose the option of getting an LLC together by going through the bank, which will want the loan to be in your name holding only you accountable.  Instead of fighting with bank rules and waiting for their decisions, try your hand at one or more of the creative options mentioned above that can get you your money faster and have you making income on that new property in no time.