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Out-of-the-Box Lending Options for Buying a Rental Property
When you can’t pay all-cash for a new rental property, your other option, of course, is to borrow the money. The primary method for doing this is to obtain a mortgage through a local bank, credit union, or some other financial institution - but guess what? Contrary to what many believe, this isn’t the only way to get financing for your property.
That’s right, there are other methods, and they’re ideal for folks who, for whatever reason, are either unable or unwilling to take out a traditional mortgage. Maybe their credit isn’t the greatest, maybe they don’t have enough for a down payment, or maybe they had a bad experience with a mortgage in the past.
It doesn’t really matter what the reason is. What matters is that you have other options, so if financing has been the obstacle keeping you from your dream of owning rental property, it’s time to revisit what’s available to you.
Partner with Other Investors
You know that saying, “It’s all about who you know”? Well, it’s very true in this industry, especially if you’re looking to hook up with some other investors to go in together on a piece of real estate. Let’s say there’s a $150,000 property out there you’ve got your eye on, but you aren’t interested in taking out a loan for that amount. Now let’s throw a couple other investors in the mix, both of whom are interested in putting $50,000 toward the deal. Now you’ve only got to come up with $50,000, and then the three of you will own the property together. As long as you can trust them and you all work well together, this is a great option as it a) gets you a cash-flowing rental property, and b) reduces your own risk in the deal.
Find a Private Lender
Private lenders are another option, and again, it helps to know some people. These lenders are people who have the capital you need, and they’re willing to let you borrow it without all the red tape that banks make you go through. This is great for investors who are interested in a streamlined process and quick closing. However, bear in mind that you will pay more in interest with a private lender, and repayment periods are usually much shorter.
Check Online Lenders
If you’re not completely opposed to seeking out a traditional mortgage but don’t want to hassle with a local bank, you could try an online lender. You’re probably already familiar with some of them, like Quicken Loans or Rocket Mortgage. Their rates and fees are usually comparable to a brick-and-mortar bank or credit union, but what they offer in terms of convenience make them the lender of choice for many investors. With an online lender, you can quickly and easily shop for the best rate and compare mortgage options without ever having to leave your house or even pick up the phone.
Ask About Seller Financing
A last option to consider is seller financing. If the seller you’re working with owns their property free and clear, you can approach them to see how they feel about seller financing. In this scenario, they essentially become the bank, and you make payments to them. Before talking to a seller about this, make sure you have a solid game plan in place. Approaching them casually is not the way to go. Have the terms of your proposed plan clearly outlined, including interest rate, payment amounts, and length of the loan. Make sure they know that if you default on the loan, they can take the property back. This type of transaction should also include an attorney specializing in real estate, so that both of you can be sure that everything is legit.
Taking out a traditional mortgage is not your only lending option when you’re ready to buy a rental property. There are a surprising number of choices available to you, so take the time to explore them and find what works best for you.
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