How To Finance Rental Property

There's a great little property that you know would make the perfect rental. The only problem is that you don't have enough cash on hand right now to make the purchase. You know that you can make some good money with this property because it's in a great neighborhood with parks, easy access to public transportation, and there's low crime in the area. How can you get the financing that you need to get this rental property into your portfolio?

Here are a few ways that you can make that investment happen right now.

1. Use Your 401k or IRA

You don't have to cash out your retirement account to be able to use it to make investments. Rollover your 401k or IRA so that it becomes self-directed. Then you can direct the retirement account to make the investment into the property. This might mean you'd have to delegate landlord duties to a property management agency, but you'd at least have the property under your control.

2. Get a Mortgage

A rental property is just like any other home. You can become a property owner if you are able to secure a mortgage for the property and then close on the sale. You will need landlord's insurance and some other specifics, but as long as your rental income exceeds your monthly expenses, you'll be in good shape.

3. Secure a Business Loan

Because rental property is considered a business, you might be able to secure a business loan to make your investment. These loans usually have a higher interest rate than a mortgage, but you'll be able to secure the loan under your business entity and limit your personal risk as a trade-off in most cases.

4. Get an Investor

You might be able to raise some capital by getting an investor to come on board with you. You'll likely have to share a percentage of the home and the income that the home can generate as a rental property in return, but this way you'll have one foot in the door and not have to go into debt in order to place it there.

5. Offer to Manage the Property

If you've got no cash and no way to get any financing, then an investor might give you a 100% funding in exchange for managing the property for them. You'll want to include a rising percentage of ownership for every year you manage the property in this instance or work on flipping it to take a commission off of it so that you get something for your hard work too.

6. Seek Out Cosigners

If your credit isn't good enough to secure lending, then maybe a group of people that you know, trust, and would be willing to cosign with you would be. They'll be responsible for the loan just like you are and they'll have ownership claims, especially if you fall behind in payments, but it is a way to get that rental property when you're feeling pinched.
Posted on Oct 17, 2014


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