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5 Useful Financing Strategies for Real Estate Investment

Investing in real estate is a long-term business. It is not a get rich overnight scheme. If you are just starting out, you probably are working with a small budget and will need to be strategic in all your moves. The good news is that there are different financial strategies for Real estate investments. Below we have outlined different types of strategies to consider for real estate investing. 

Business strategy 

There are two main types of business strategies that real estate investors want to follow. The first business strategy includes a small group of people that want to purchase or invest in a property that would pay them back after a short period of time or that can resell quickly. This financial strategy is ideal for investors who are well versed at selling and negotiation. 

The second business strategy is a long-term investment. Shareholders seek out houses that are in need of little repair. Majority of these properties will be occupied by renters for the duration. After some time, investors aim to sell the property for a larger return on investment (ROI). This strategy is a bit more complicated but the benefits exceed the previously mentioned. 

Starter strategy 

If you are a beginner in real estate investments then this strategy is for you. In this strategy, it is crucial you establish a road map for your investment. Every step should be well calculated so that there is room for error. Being new to real estate investing there will be mistakes made but if you plan in advance then you are likely to lose less money along the way. 

With the starter strategy it is recommended to have a team that you can consult with. Having others that are knowledgeable in this industry can help save you money. You can greatly benefit from investing in a transit market, house hacking, a live-in flip, and BRRRR (buy, rehab, rent, refinance, repeat). 

House hacking is a strategy in which you utilize the house that you are living in. If you have any extra rooms, land, or storage you can rent it out and monetize the space you are not using. This method would allow you to earn/save money. 

The live-in flip strategy is when a person lives in the house while renovating and making repairs. After updates to the home are complete the property is then sold for a profit.  

BRRRR (buy, rehab, rent, refinance, repeat) investment is a specified method where the investor buys a property that is in need of repair at a lower cost, rehab the property to a minimum that it can be safely occupied, rent out the property to create a passive income, do a cash-out refinance loan to convert the equity into cash, and then repeat. This financial strategy is a good approach to build up one’s real estate investment portfolio. 

Creative Thinking Strategy 

With Creative Thinking Strategy, this type of investment would be beneficial in the long-term. As the name indicates, you would have to be creative with financing as you will need a larger down payment than the standard requirements. Consider using a home equity line of credit (HELOC) where you can draw money which can then help consolidate debts. If you are not wanting a partner and take on real estate investing solo you may be able to use creativity in your investments and  financing with a life insurance policy. 

Loan Strategy 

If you are a beginner in real estate investment and need financial assistance, you can go to a local bank or credit union. Generally local lenders can offer loans with lower interest rates. Loan options include: 

Fixed-rate Conventional Loans – they have fewer monthly payments but require a large amount of money for the down payment.  

Adjustable-Rate Mortgage – are conventional loans suitable for short term. This loan is not advisable if you are planning on living at that location for an extended period of time as it would be more expensive. 

Home Equity Loan – an opportunity for those who typically do not live in that house and use another primary residence but borrow funds to use for the investment property purchase. 

Commercial Real Estate Loans- are offered for those who have an established portfolio and are experience in real estate investment. 

Funding Strategy 

Private real estate funding is when stakeholders offer financing directly to the investor rather than hard money lending where funds come from a bank or institution in the form of a loan. Such funding is beneficial for the long term. 

Crowdfunding includes a large group of people providing money. Generally, individuals contribute small and various amounts towards the goal. 

Cash-out financing is another way to get money for an investment. In this strategy, you get money from the house you own but you’re not living in. Essentially, you are paying off the house for which you are getting refinanced and use that money to invest in another property. 

Owner financing is a transaction where the property seller finances the purchase directly with the buyer. Most of the risk falls on the property owner but is a good option if you little money to invest when starting out. 

In Summary 

Now after reading all the purchasing methods provided above, you can choose a style of financial strategy that is best fitting for your real estate investment situation. Good investors diversify and use a mixture of financial strategies based on individual circumstances. 

Over time, you will gain experience and education from investing in real estate. You will become more knowledgeable in finances, mortgages, leveraging, taxes, interest rates, and borrowing. These specialized skills will allow you to become more strategic over time with your real estate investments. 

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