Financing Investment Properties

Financing investment properties is one of the hottest topics of discussion after the bank crash of 2008. Prior to 2008 just about anybody could get a real estate loan on investment property with no-doc loans and 100% investment property financing options. After the crash banks want 20% or more down and a well documented income before they will approve you. So how to finance investment properties?

Now is the time for creative real estate investing ideas to be put to use. When the banks won't lend, you don't have to sit on the sidelines in the real estate investment game. But you can't be held back by non-traditional real estate agents that want to see your prequalification letter before they show you a house.

One of the advantages of a stressed real estate market is that sellers are more motivated then ever to get rid of property. This actually creates opportunity for the enterprising individual. There are a lot of "don't wanters" out there. You just have to be armed with the knowledge about how to help them solve their real estate problem.

One of the first ideas that you should approach any seller with is the possibility of seller financing . There are advantages to the seller, such as getting a higher price for their property and obtaining a steady stream of income. As a buyer you don't have to worry about getting a bank approval or creating more debt to drag down your credit score. Seller financing is very flexible - both price and terms can be manipulated to get something that can generate a positive cash flow for you, the investor.

A second idea for financing investment properties is to do a sandwich lease purchase . You get control of the property with a long term lease with option to buy and then turn around and lease option the property out using my rent to own strategy. It costs little to get into this kind of deal and you can generate a positive cash flow rather easily as well as a profit when the property is sold.

The third method of financing investment properties is buying the property "subject to" the existing financing. If the current loan against the property is too high, this is not a good idea. But if there is equity in the property and market rents are higher then your PITI then it is possible to take over the existing financing. Now most loans have a "due on sale" clause so this could trigger the bank to call the loan. However, if you follow my advice this is unlikely to happen. And most banks are just happy to have the mortgage paid rather then foreclosing on another house.

If you are going to flip the house you buy, you might consider getting a hard money loan . Not only can you finance the entire purchase, but you can also get money to rehab the property. Hard money loans have high interest rates and high points, so this is not something to use when you are planning a buy and hold strategy of rental property investing.

The biggest secret of financing investment properties when the banks won't lend money is to find private investors. Now, some investors have lots of cash to invest, but they are few and hard to find. However, there is a huge untapped market of private investors that you know - people with IRA's! Few people realize that any IRA can be converted to a self directed IRA . Maybe you have one that is not performing well in the stock market. Convert it to a self directed IRA and your IRA can buy the investment property. Or you can approach any one who has an IRA and sell them on the benefits of using it to loan money to your real estate investments. I've put together professional DVD's highlighting the benefits to IRA owners of using their funds to lend to me. Instead of investing in a low yield CD or a high risk stock, they could be earning 10-12% on their money with relatively little risk.

Financing investment properties is not that hard when the banks won't lend - just get creative!

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