Ever heard the phrase ‘the devil is in the details’?
Even if you haven’t, you’ve probably experienced it yourself.
Well, guess what?
This phrase carries large degrees of truth in financing a rental property. When investing in real estate, everyone wants to earn the maximum returns for their hard-earned dollar but it’s easy to go wrong by failing to consider the most important details – like how to pick a real estate funding option that best aligns with your goals.
But if you’re reading this, the good news is that you’re already researching and acquiring the right knowledge to make your best decision which at the end of the day, can make a huge difference on your returns.
As always, there’s a good and bad to everything and since we’re a real estate investing company, we can at minimum help give you the facts to guide your decision.
And that’s what you’ll be reading about next.
We’ll share crucial things you need to know about the 5 most popular real estate funding methods and don’t worry – you’ll hear the good, bad, and everything in between. The real estate fundng methods we’re covering are:
Using an all-cash approach means that you pay for your real estate investment outright.
With an investment median sales price of $238K, you would pay this entire amount plus the cost of renovations, maintenance, and any additional expenses. Let’s go over the benefits and drawbacks to an all-cash approach.
Bottom line: cahs is always great but it can come with an opportunity cost. Even though you may get a great deal now on an investment property, it may tie you up in potential deals in the future.
Taking out a loan means that you’re going to pay 20% to 25% for the down payment on your home, while the bank covers the rest. You will then have monthly payments that you will have to pay over a fixed period of time, depending on the requirements of your loan. Let’s consider this approach in more detail.
In short, a bank loan incurs more expenses than an all-cash approach, but if you don’t have all the cash on hand for a rental property or you simply want to invest in a bigger portfolio, consider applying for a loan. A bank loan remains the most popular way for financing a rental property.
Although financing and cash are more popular ways to fund rental property investments, there are other, non-traditional routes that can be used to achieve the same goal. They include a SDIRA, IRA, and a 1031 exchange.
Let’s go over each.
A self-directed IRA (SDIRA) is another way to invest in rental property investments and grow your retirement savings. Basically, you are using the funds from an IRA account to set-up an SDIRA and buy property within these funds.
A 1031 exchange represents a second alternative way to purchase an investment property. It allows you to essentially take the equity of one investment property and exchange it for new investment properties, tax-free.
See original at https://www.homeunion.com/5-options-for-financing-rental-property-investments