(Newswire.net — January 13, 2023) — The average gross profit on house flipping is a little under $70,000. While the practice is less profitable than it was in the past, it’s still a great way to bring in extra income. It can also add some diversity to your investment portfolio.
Most people don’t have the cash they need to flip a house sitting in their wallets. That’s where investment property loans step in to save the day.
You can use the money you get from the loan to fix up a property and rent it out. The tenant’s monthly rent will help you pay back the loan.
There are different types of investment property financing options available to you. Continue reading to learn what they are.
What Are Investment Property Loans?
As stated above, these are loans that you can get for buying an investment property. Once you obtain your funding, you can use it to flip a house and rent it out.
Most lenders assume that you won’t be living in the home yourself. However, you can buy a multifamily investment home and live in one of the units.
When it comes to loans for an investment property, you’ve got several options to choose from.
Conventional Bank Loans
Conventional bank loans are standard mortgages that meet the standards of Fannie Mae or Freddie Mac. Since these loans aren’t backed by the government, you don’t have to live in the property to qualify.
You will have to pay a 20% downpayment, however. For ways to put less down, check out this investment property loan guide.
Conventional loans will also take your credit history and credit score into account. Lenders will review your assets and income when making a financing decision too.
Hard Money Loans
Hard money loans are popular with house flippers. These short-term loans are a bit easier to get than conventional loans.
Lenders will still take your credit score and assets into account, but they’re more interested in the profitability of the home you’re buying. Be warned that these loans often come with high-interest rates. You can expect to spend about 18% or more.
Private Money Loans
Private money loans are a trade from one individual to another. Most of the time, these loans come from family or friends.
If you don’t have someone in your life that’s in a position to help, be sure to attend real estate networking events in your area. You might be able to find someone willing to give you a loan.
As far as interest rates go, they can vary depending on your relationship with the lender.
Speaking of relationships, it’s recommended to weigh all your options before you borrow from a loved one. If you can’t pay them back, it may sour your relationship with them.
Understanding Investment Property Loans
If you don’t have the money to flip a house with your current assets, you’ll have no choice but to look into investment property loans.
The rent that you get from your tenants will help you pay back the loan and you have a wide array of options!
For more tips that will help you fund your real estate dreams, visit the Finance section of our blog.