Purchasing real property offers investors a reliable way to build their portfolios while driving profits. Staying competitive in the current buyer’s market means that investors need to know their financing options and be confident when choosing a loan. Of course, securing a loan for the purchase of an investment property isn’t always easy. If you’re thinking of buying for the first time or need to find innovative ways to expand your portfolio, it’s important that you understand the differences between hard money loans and traditional investor loans. Choosing the right loan for your purchase can make a world of difference when it comes to building strength and realizing profits.
Financing Options for Today’s Investors
Whether you’re a seasoned investor or want to purchase real property for the first time, understanding your financing options is key to realizing the largest return on investment (ROI) possible. As you consider loans and financing products, it’s important to remember that many conventional loans targeted at homeowners are not available to investors who want to buy non-owner occupied properties. Most investors will need to choose between investor loans offered by traditional lending institutions and hard money financing offered by private money lenders.
Hard Money Loans
One of the most viable options for real estate investors, hard money loans are designed to provide timely financing for the purchase of a wide variety of property types. Most hard money lenders use borrower equity instead of credit scores to make final loan determinations, so these products are ideal for those investors who already own property and want to build their portfolios.
Two of the most popular types of hard money loans are bridge loans and fix-and-flip loans. Bridge loans provide money to business owners who need to cover gaps between expenses and available finances. They can be used to pay off mature notes, buy properties free and clear, or meet business obligations. Fix-and-flip loans provide money to investors who want to buy distressed properties and rehab them to sell at a profit.
For investors, the chief advantages of hard money loans include:
- Lending decisions based on equity.
- The ability to purchase distressed properties.
- Quick financing approvals.
- Fast delivery of funds needed for all-cash offers.
Traditional Investor Loans
Some real estate investors may be able to use more conventional financing products to purchase real property. For example, first-time buyers who want to purchase a home as an investment might qualify for an FHA loan. However, most traditional lending institutions place many restrictions on the types of properties that can be purchased with investor loans. Distressed properties are generally excluded, meaning that the majority of traditional lenders can’t offer competitive fix-and-flip loans.
Hard Money vs. Investment Loans: What’s Your Best Option?
If you’re considering buying investment property, you must weigh many factors to ensure that you’re making a wise decision. Of course, financing is one of the most important. As you think through your financing options, ask yourself:
- What type of property do I want to purchase?
- What is my overall equity?
- Can I qualify for a conventional loan?
- Can a conventional loan provide funding in time?
Of course, it’s essential to work with a trusted hard money lender. At Socotra Capital, we’re proud to be California and Nevada’s premier hard money lender. We’ll be happy to help you explore your financing options.