The Investor’s Quick Guide to Real Estate Financing Options

Abstract

Investors typically don't need to utilize private money loans unless they have a reason not to pursue a conventional bank loan, but it is an option if you're in a tight spot! Pros: The big advantage of private money loans is flexibility. Hard-Money Loan How It Works: Hard-money loans are a variant of private money loans that are best suited for flippers, not buy-and-hold investors, but it's worth mentioning. In 2020, the average interest rate for these types of loans was 11.25% - compared to the then record-low 30-year-fixed rate of around 3%. Investopedia calls hard money loans the "Last resort." The terms here are short, with most borrowers planning to resell the collateral property within a year. Home Equity Loan How It Works: Commonly referred to as a second mortgage, these types of loans allow you to borrow against your existing home equity. Cons: Home equity loans are fairly easy to secure, which can result in a cycle of debt difficult to climb out of! It's common for borrowers to fall into a habit of reloading: which is a "Rob Peter to pay Paul" approach wherein loans are taken out to pay existing debts and gain more lines of credit, which the borrower then uses to fall further into debt. Portfolio Loan How It Works: Portfolio loans aren't too different from conventional bank loans. Interested in adding a 2022 home to your portfolio? REI Nation offers build-to-rent single-family residences across several markets-learn more now! 203K Loan How It Works: A 203K loan, otherwise known as an FHA 203(k) loan, is issued by the government for one of two purposes: purchasing a property and funding property renovations.