Education and news for smart DIY landlords!
A British Philosopher named John Stuart Mill once said, “Landlords grow rich in their sleep”.
Do you believe that?
Rental properties are great investments because they can turn into a steady source of income for you. It earns money for you as you eat your meals, take a shower, lay on your bed and even as you go about doing other things in your life.
The population increases day after day. That’s a fact. So that means more and more people need places to stay.
Imagine these scenarios:
A new graduate is moving into a city far from his home.
A newly married couple are moving out of their family homes to start a life of their own.
A family needs a bigger space because of a new baby.
Not everyone has money to buy their own home, so renting a property is the way to go.
That is your market!
But wait! You just picked the property you want to buy.
Here are 5 ways that you can consider:
It has been said many times and I’ll say it again, “Cash is king”. Of course, if you have cash, that’s awesome. Nothing beats having to pay everything in full and not thinking about anything else after, except maybe some renovations and getting a tenant to rent it. You get the idea. Most of the time, it’s easier to negotiate the price if your paying in cash. You’ll get to save a lot of money by buying in cash.
If you’re short of a few thousand, there’s no need to go to the bank. Well, you can, but if you don’t have time, you don’t have to. There are online lenders nowadays that can help you finance the property that you want to buy. You’ll be needing some cash for the downpayment, and the rest will be from the lender. Make sure to consider the ones who specialize in investment property lending, so they understand your needs. Compare interest rates with other online lenders as well.
With conventional lending, you’ll use the property you want to purchase as collateral for the loan you wish to borrow. Typically, you’ll also need to prepare money for the downpayment and the balance will come from the loan which you will pay in installments. The downpayment can set you back at 20-30%, but it’s still considerably lower than having to pay in cash, but of course, there will be some interest involved.
There are people who are willing to finance. It’s faster, but be ready as it will come with a higher interest rate. If you’re considering this method, consider the property’s potential. Is it in a good location? If it’s a good location then rental rates have no other way but up, right? Is the property well-maintained? What’s the likelihood that it will continuously have a tenant? If all your answers are positive, then a Return of Investment won’t seem far-fetched.
For a HELOC (Home Equity Line of Credit), the collateral is an existing property of yours. The difference between HELOC and mortgage lending is that instead of giving the loaned amount upfront, you will be given a line of credit, much like a credit card, and you will not be allowed to go beyond the credit limit.
Aside from these five, there are other ways to finance the rental property that you’re eyeing such as cash-out refinance or home equity loan. The best thing to do is to weigh your options and check what will work best for you depending on the budget on-hand, your capacity to pay if you're getting a loan and the condition of the property that you’ll be getting.
If you’re ready, make Landlord Prep your go-to resource for landlording education. Here, we offer a complete DIY landlording course to get you on the right track. Join our academy today. If you want, you can check out Flavia’s real estate investing webinar first!