5 Better Alternatives to Mortgages for Real Estate Investing
Investing options await!
If you’re preparing to invest in real estate and want to know your finance options, securing a mortgage is rarely going to be the best decision.
With their strict lending requirements and high interest rates, mortgages might not even be a viable option to consider for your investment project. Here, we’re sharing 5 of the better alternatives to mortgages to consider for funding your venture.
Please note- in this post, we are sharing ideas/concepts and by no means is financial advice or guarantee. As always, invest at your own risk.
Hard Money Loans
Hard money loans are short term loans that are secured by the property you’re investing in. They’re provided by private lenders, not banks, which means their approval process is generally a lot faster.
These loans are a great choice for if you’re investing in a fix-and-flip property and need quick funding, at the expense of higher interest rates. Because their repayment terms are typically fairly short, loans provided by hard money lenders work best for projects where you plan to sell or refinance quickly.
Private Money Lending
Private money loans are similar to hard money loans, but they have more flexibility because they come from individual investors, not companies.
The terms for a private money loan can vary greatly from one loan to the next, depending on the specific agreement between the borrower and the lender. If you have a strong network of investors or personal connections, this option will probably make a lot of sense for securing funding without the strict requirements of a bank loan.
Seller Financing
With seller financing, the property owner acts as the lender, and you pay for the property in installments instead of a traditional mortgage.
Obviously, this is only going to be suitable for specific projects, but if it fits your situation, it can be a helpful solution if the seller is open to long term payments and doesn’t want you to make a full payment upfront. You’ll be able to directly negotiate the loan’s interest rates and terms, potentially giving you more flexible repayment options.
Lease Options
A lease option lets you rent a property with the right to buy it later at a set price. With this solution, you’ll have time to get funding or decide if the property is a good investment before you commit to a purchase.
While lease options usually require you to pay an upfront fee, you might be happy to do this to get control of the property without needing full funding.
Home Equity Loans or Lines of Credit
Finally, if you already own property, you have the option to borrow against its equity to fund another investment. There are a couple of options here, with home equity loans and lines of credit being the most popular.
A home equity loan gives you a lump sum of money from your existing property, while a home equity line of credit (HELOC) gives you access to a revolving credit line. Both of these financing options tend to be better for experienced investors who have built up equity and want to grow their portfolios.
Takeaway
You don’t need—and nor should you want— a mortgage to invest in real estate.
The financing options in this article are all better alternatives to mortgages, but some might be better than others for you depending on your situation.
