Understanding real estate investment loans

The RPM Evolve blog

Understanding real estate investment loans

Choosing to opt for real estate investment loans can propel you into successful rental property investments, here is what to consider.

There is no right or wrong way to get your foot in the door as a real estate investor or rental property owner. In fact, real estate investors make their way into the business by taking many different routes. For some, having the funds in hand already can make that first purchase quite simple. After a good investment or two, cash flow starts increasing and it becomes more possible to elevate the size of your portfolio. Others turn to silent financial backers who have the money but may not be too interested in actively pursuing real estate. They will financially help investors get that first property, for instance, with the promise of a decent ROI.

What do you do if you don’t have a wide pool of funds set aside? You can consider real estate investment loans. Here’s what you need to know.

Things to Consider with Real Estate Investment Loans

Real estate investments require a long-term commitment. For quite a while, investors have been able to obtain loans to purchase rental properties if they don’t have enough capital to do so without it. But you have to remember that it could take years to see any notable returns from your investment – especially if you are paying back a loan.

Many banks offer these loans, but the process to obtain them can be tedious. And, they may even require that you offer up collateral – such as your own house – that you could lose should you default on your loan. This may or may not be a risk you are willing to take.

Thankfully there are a few things you can do to make the process of getting real estate investment loans a little more manageable and accessible. Let’s take a look at some of them so you can get started.

1. Know What You Need

You can’t jump into applying for real estate investment loans without having an idea of what you need. Before you go seeking out a bank, know how much money you want to borrow and how you intend to invest it. Look at the bigger picture, both in your goals and your current concrete financial situation.

2. A Letter of Intent (LOI)

A letter of intent is basically a document that will declare your commitment to a loan. It states your intention to pay back the loan (according to the terms) if borrowed. This letter would then be signed and handed to the lender of your choice.

3. Draw Up a Business Plan

You may not think of real estate investing as a business, but it is. And if you intend to take out a loan for your business, then you need to have a plan. Lenders can review this to ensure you have a sound proposal and that the calculated returns are enough to cover the cost of the loan. In your business plan, you will want to address the specific details of the loan, such as how you intend to use it and how you will gain a profit to be able to repay it.

4. Check Your Credit Report

To get real estate investment loans, you are going to need to address any issues with your credit report. That means disputing any inaccuracies or negative information found on your report – in addition to paying off any outstanding debt. Depending on your credit situation, you may want to reach out to a financial professional who can help you clean things up and put you in a more favorable position for lenders.

5. Choosing the Right Lender

Speaking of lenders, you are going to have a lot available to you. Nearly all banks, finance companies, and mortgage companies offer real estate investment loans which put you in the position to choose the right one for you. Shop around and look for those with more flexible terms and lower interest rates.

6. Gather Your Information

Along with information and details about your investment, your business plan, and so forth, you will also need to provide your personal information. The lender will want to know about your income and any assets you may have as well as how you intend to invest the money. Really, what they are trying to determine is whether you are going to be able to pay back the money on time. So gather up every piece of information that can help them see you will be in a position to repay the loan, enlisting the help of your accountant, if necessary.

7. Bring Out the Collateral

There is a chance that your lender, regardless of the institution, is going to require you to have collateral. This needs to be valued enough to cover the cost of the loan. Many investors have used combinations of jewelry, collectible items, homes, cars, and boats to make this happen. If you don’t have enough assets, you may have to seek out alternatives, including a reduced loan amount.

8. Celebrate Your Approval

Once you take the time to make all this happen, it may just be a few weeks before you receive an offer letter from your chosen lender. The application process is over and you can breathe a sigh of relief. But, there is still paperwork to be completed before you can walk away with your money. Complete it in a timely manner and you will be well on your way to building your real estate investment portfolio.

Whether you are new to the world of real estate or you are diversifying your portfolio, you will find that real estate investments loans could be a great asset to your future plans. Though, it is important to make investment decisions based solely on your situation. Not everyone has capital for investments, but nearly everyone has access to loans. All you need to do is follow the steps we’ve provided in ensuring you are ready to apply – and then move forward with obtaining that loan. Once you have the funds in hand, you can proceed with your real estate investment goals.

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