Real estate investing has an impressive past. Known to be one of the less volatile types of investing, it is equally well-suited for the professional investor with a large, diverse portfolio and the hobby investor who owns one or more rental homes. For those new to real estate investing, however, the most difficult part can be finding financing to purchase the type of rental property they are interested in purchasing. If you are planning your first purchase of real estate for investment purposes, the following information will help you choose the best financing option for your needs:
Adjustable Rate Loans, Commonly Known as ARMs
Like the adjustable rate loans commonly used to purchase owner-occupied homes, investment ARMs can offer a lower interest rate. This can make it a good choice if the loan is small or the investor expects to pay it off before an interest rate increase can occur. When considering an ARM, investors should always make sure they clearly understand how often and how much the rate is subject to change, as well as any other applicable terms.
Conventional or Fixed Rate Loans
Fixed rate loans are just as popular with investors as they are with homeowners who want to enjoy stable financing terms throughout the life of the loan. This type of financing is especially helpful for an investor who is actively building a portfolio because it allows them to more accurately predict ownership costs and budget accordingly.
The balloon mortgage should be approached with caution by the novice investor. It can seem attractive because it uses a 30-year amortization model that offers low monthly payments, but it must still be paid in full after a much shorter period, often just five years. While this type of loan may be convenient and cost-saving for the experienced investor with sufficient resources to pay the note on time, it is likely to carry too much risk for a beginning investor without the security of a solid portfolio of producing properties to rely on.
Crowdfunded Investment Loans
A relatively new investment loan option, the crowd-funded investment loan is something new investors may want to consider. This type of loan can offer better interest rates and terms than some other loan types and may process much faster.
Before considering a crowdfunded loan, or any other type of real estate investment financing option, beginning investors should take time to discuss their needs with a lender in their area who specializes in real estate investment loans. They will be able to help you determine which type of loan will best fit the budget you have set for your investment project.
Contact a company that offers investment real estate loans for more information and assistance.