The Best Real Estate Financing Options For The Upcoming Investor

You’ve studied the market and determined that this is the best time to make the jump into Austin apartment development. You’ve even done your homework and prepared a solid business plan. Now all that’s left is to secure financing for your first rental property. Here are some of the options you might want to consider.

Cash-out Refinance

A cash-out refinance allows you tap into the equity you’ve built up in other properties you already own, such as your home. It basically pays off the current mortgage and offers you the difference in cash, which you could then use to finance your Austin apartment development project.

Cash-out refinances can be beneficial in a couple of ways. For starters, you can consolidate two or more mortgages and refinance at a lower rate. You’ll also be allowed to deduct the interest paid on the new loan from your taxes.

Private Money

This mode of financing involves borrowing money from private parties; individuals or entities who aren’t affiliated with traditional lenders in any way. A private lender can be anyone who’s willing to fund your plans in exchange for interest. It goes without saying that you’ll need to cultivate a relationship with the lender to be able to borrow.

Because it’s possible to negotiate terms, private loans are often extended at friendlier terms. It’s however worth highlighting that the lender will have the right to foreclose if you fail to live up to your obligations.

Hard Money Loans

Hard money describes a specific type of financing where you borrow funds from a non-traditional lender using your property as collateral. So pretty much like private money, with the only difference being that hard money lenders aren’t as flexible. The loan terms have a more formal structure, and the interest rate will usually be higher compared to other modes of financing. Nonetheless, hard money loans often have the shortest turnaround time between application and funding.

Portfolio Loans

If you want something more cost-effective, a portfolio loan might be your best bet. Portfolio loans are offered by local financial institutions without being re-sold on the secondary market. Because it’s not subject to the rigid guidelines applicable for traditional mortgages, this mode of financing can be more accommodating.

The only drawback is that lenders who offer portfolio loans don’t often advertise the fact. As such, you have to rely on referrals and investor networks to find them. Otherwise, you have no option but to contact lenders one by one making inquiries.

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