Three Ways to Start Financing Investment Properties

Choosing the right financing option for investment properties is an important decision that can significantly impact the profitability and sustainability of your project. There are various financing methods available but understanding each one ensures they align with your investment strategy, finances, and the specific property you’re considering.

Financing investment properties with Clark County Credit Union in Las Vegas, NV1. Conventional loans

Conventional loans are typically offered by most financial institutions and mortgage lenders, making them one of the popular choices for financing investment properties. You can use conventional loans to purchase investment properties such as rental homes, multifamily buildings, or commercial real estate.

  • Downpayment: Investment properties typically require a larger down payment compared to residential loans. The downpayment can range from 25% to 30% depending on factors such as your credit worthiness, property type, and loan terms.
  • Interest rates: Interest rates on investment properties are slightly higher as lenders consider investment properties to be riskier than residential properties.
  • Loan terms: Depending on your financial goals and cash flow requirements, loans terms can start from 15 to 25 years with a fixed from 5 to 10 years or adjustable interest rate.

2. Private lending or hard money loans

Instead of taking a loan through financial institutions like credit unions, you’re borrowing from private lending institutions or individuals. These types of loans are often used by real estate investors who need quick financing or investors who don’t qualify for conventional loans.

  • Shorter terms: While the approval process for hard money loans is faster than financial institutions, they typically have shorter loan terms ranging from six months to three years resulting in higher interest rates than conventional loans. Hard money loans may be a good option if you’re looking to renovate and flip properties quickly.
  • Collateral: Private lending is often collateral-based, with the investment property serving as collateral when you lend. If you don’t qualify for a traditional loan but have valuable real estate assets, private lending may be a good option to consider.
  • Credit flexibility: Private lenders may be more lenient when it comes to credit requirements since they focus less on your credit scores and more on the property’s value and potential.

3. Home Equity Line of Credit (HELOC)

If you’re new to property investing, using your home’s equity is a good place to start. This financing option allows you to use the equity you have built up in your personal residence to secure additional financing.

  • Access to equity: Using a HELOC allows you to tap into your home equity, or the difference between your home's market value and the outstanding balance on your mortgage.
  • Lower interest rates: The interest rates for these options are generally lower than those for hard money loans and they offer the flexibility of using the funds when needed.
  • Flexibility terms: HELOCs offer flexibility in terms of accessing funds. You can borrow and repay funds multiple times during the draw period, which typically lasts up to ten years. This flexibility can be beneficial for real estate investors who need intermittent financing for property acquisitions, renovations, or other investment purposes.

Investing in real estate or commercial properties can be a lucrative way to build wealth but it requires strategic planning and understanding of the various financing options available. For any questions about commercial loans, our Commercial Team is here to help local investors and business owners obtain the right financing options for their investment properties. Visit www.CCCULV.org or call us at 702-228-2228.