Call Us: (631)201-5569
Fund your Real Estate Investment

The Best Ways to Fund your Real Estate Investment – Pros and Cons

August 21, 2020
  • Share On:

There are plenty of viable options for real estate loans—making it challenging for investors to figure out which method of financing is ideal for their unique situations. The majority of real estate professionals assume that a traditional bank-issued mortgage is their best bet, but they have some serious limitations when it comes to property investments. Hard money, however, gives investors more flexible financing so they can diversify and grow their real estate portfolio with bigger projects. Another route is cash—but acquiring a real estate asset that way has the potential to cut into the overall profit margin and cap the investment potential from a long-term perspective.

 

The following is a handy overview of the pros and cons of the aforementioned real estate financing options to assist investors in determining what the best fit for their investment projects is.

Bank-Issued Loans

Bank-Issued Loans

 

Banks are the conventional route for obtaining loans for real estate investing, and offer a range of financing options. Loans for real estate usually include a larger down payment and higher interest rates as opposed to personal loans—although investors planning to acquire a multi-family property and residing in one of the units may be eligible for an FHA loan that requires a down payment of only 5%. Here’s a quick run-down of the pros and cons of bank loans:

 

Pros:

 

  • Most commonly used real estate financing option
  • Typically offers best available rates
  • Leverages cash resources
  • Eligibility for FHA loan option

 

Cons:

 

  • Obtaining rehab funding is not easy
  • Lengthy closing period
  • Strict borrower requirements
  • Higher down payment required

 

Cash

 

If an investor is fortunate enough to have extra cash, it can be repurposed into real estate investment projects. When financing with cash, there’s no need to wait for approval from a middle-man, offering cash investors an added advantage when purchasing properties. Bear in mind, however, that consolidating your financial assets like that can be quite risky. The following is an overview of the pros and cons of using cash to fund real estate investment projects:

 

Pros:

 

  • Instant closing
  • Avoid fees from working with a lender
  • No prerequisites to qualify

 

Cons:

 

  • Consolidating funds in a single place is risky
  • Devoting all cash into a single project makes it difficult to make other investments
  • May not have enough to cover unforeseen expenses

Hard Money

Hard Money

 

With this option, the lender uses the hard asset—the investment property— to secure the loan. Hard money loans are a form of short-term loan, which makes them an attractive option for investors who are looking to fix-and-flip a property. Usually, investors use hard money funding to cover around 80% of the asset’s sales price before starting rehab projects, so the lender has to be convinced that the project is worth more than the loan plus any potential liquidation cost in the event of a future default. Because of the inherently higher risk, hard money lenders generally charge higher interest rates and tack on additional fees. The following is a look at the pros and cons of choosing the hard money lending option:

 

Pros:

 

  • Flexible loan terms
  • Easier qualification requirements as the property secures the loan as opposed to the investor’s personal financial status
  • Quick turnaround on loan funding, which allows investors to negotiate effectively on offers
  • Lenders are experienced in the industry and will work with you to find the right solution for your situation

 

Cons:

 

  • Typical interest rates run between 10-12% – higher than other types of loans
  • Poor credit history may increase an investor’s out-of-pocket costs
  • Shorter-term means the outstanding balance will have to be paid in full, usually within a year or less

 

learn more about Best Ways to Fund your Real Estate Investment

 

The Best Ways to Fund your Real Estate Investment – Pros and Cons | Gauntlet Funding – Melville, NY


[contact-form-7 404 "Not Found"]