Thinking of investing in Sacramento, CA property? If so, you'll need to be familiar with two things: the Sacramento market and your financing options.
See, financing rental properties is all about ensuring your earnings are outpacing your interest rates. The key to doing so is choosing a borrowing option that gives you the right balance between short- and long-term costs.
Not sure where to start? Read on for a list of five of the most popular real estate financing options on the market today!
Conventional Loan
A conventional loan is your standard loan made through a private lender. The usual expectation for a down payment is 20-30% of the home price. That said, the lender may accept less depending on your income and credit.
These loans usually have lower interest rates compared to other real estate mortgage solutions. They also offer long repayment periods ranging from 15 to 30 years. This is a good fit for rental properties.
Private Money Loan
A private money loan is a loan from one individual to another. Your family and friends are common sources of these loans. You may also find a private lender at a local real estate investment networking event.
These loans can come with a wide variety of interest rates and loan terms. The deciding factor here is the relationship with your lender. Due to the increased risk for the lender, though, interest rates are often high.
Hard Money Loan
Hard money loans tend to be short-term real estate loan options. They're often used for flipping a property. That way, you can buy a property with a hard money loan and pay it off right away with another type of loan.
If you're not planning on flipping your property, hard money loans may not make much sense. They tend to come with high interest rates, and you often have less than a year to repay them.
Commercial Loan
A commercial loan is ideal for financing properties intended for business purposes. This includes warehouses, office spaces, apartment complexes, and so on. They usually have shorter terms, ranging from 5 to 20 years.
As far as investment property loans go, commercial loans have fairly rigorous qualifications. You'll need extensive documentation to qualify, including business plans. Plus, the approval process can be long.
Tapping Home Equity
Your final property investment financing option is to draw on your equity. You can do this via a home equity loan, cash-out refinance, or a HELOC loan. You may be able to borrow up to 80% of your home's equity value.
The key benefit of tapping your home equity is that this gives you access to major funds. You can use this as capital for down payments or even a full purchase. The drawback is that it puts your primary home at risk.
Real Estate Financing Made Easy
No matter how you slice it, investing in real estate is a risky venture. That said, choosing the right real estate financing option can make a big difference to your bottom line. The above guide will fill you in on the basics!
Are you looking to maximize the returns on your new Sacramento property? At PMI American River, we can make this easier for you! For starters, use our ROI calculator to work out the expected profits from your unit!
