You have probably seen homes in your town that get purchased, fixed-up, and then sold. Real estate investment companies large and small will buy homes at low prices and fix them up for sale or rent. Property is considered one of the most lucrative kinds of investments.
Figuring out how to finance real estate investments can be tricky, especially for newbies. The good news is there are many loan options available for commercial real estate investment properties. But first, make sure you are building and maintaining a strong business credit profile. Having a good business credit history will improve your acceptance and interest rates on all of the options below. If you need to build business credit or repair your business credit, reach out to a commercial real estate credit repair expert to help so you do not lose out on an investment opportunity.
5 Ways to Finance Your Real Estate Investments:
- Fix-and-flip loan:
These short-term loans are great for investors who want to buy fixer-uppers for cheap, renovate them, and then sell them for profit. In this case, lenders primarily look at the borrowing company’s credit and the potential profit of the property.
- Conventional mortgage:
A lender will require at least a 20% down payment for conventional investment loans, up to 6-months of liquid reserves, great business credit scores and reports, and sufficient financial/income documentation.
- Home equity loan:
A home equity loan is easier to qualify for and may have better terms since your personal home is being used as collateral. This might be an option for newer investors who are still getting their feet wet and do not have a strong business credit profile yet. Lenders will look at your personal credit and want to see a low debt-to-income ratio and excellent credit score.
Equity loans are provided in a lump sum and can be used any way you see fit. Be sure to use the funds properly and weigh the investment carefully.
- Private money loans/investors:
Many real estate investment companies use private money from wealthy investors to fund and operate their firm. You can find wealthy investors who are looking for good ways to invest their money and make a profit. There are many advantages to getting a private investment loan or investor capital, since there may be fewer formalities required.
Investors usually will ask to look at your business portfolio, financial statements, and will keep a constant eye on your business credit history and scores. Even after the capital is given to your company, investors will be watchful for changes to your business credit. Business credit score fluctuations can indicate financial vulnerability and cause investors to withdraw and back away. Be sure to manage your business credit reports on a constant basis.
- Commercial real estate loans:
Also known as “hard money” loans. This type of lending is used by professional real estate investment companies. These are fast-paced commercial real estate loans that are approved the day of application. Hard money loans require 25-30% down and will review both business and personal credit scores. These are short-term loans intended for fixer-uppers that you’re planning to sell quickly and typically have high interest rates. This type of real estate investment loan is not intended for investors who are buying a rental property.
What do all these funding options have in common? They all review credit scores and history. Business credit reports can be pulled by lenders or investors at any time without your permission. It is so important to review your business credit report on an annual basis so that you have the best loan options available to you. North Shore Advisory offers free consultations and can purchase all major business credit reports at a discounted rate. Call for more information and to speak with our business credit experts.