Real estate is a great way to take advantage of rising interest rates and make some profit if you do it right.
For most of us, the tricky part is raising the capital that is needed to make an investment. More often than not, lenders require excellent credit ratings and down payments in the tens of thousands.
However, there are some alternative options that property investors can explore.
Particularly popular with first-time buyers, FHA loans can be a good way to get yourself on the property ladder.
FHA (Federal Housing Administration) loans are offered by mortgage providers but have been approved by the FHA. The FHA also insures these loans.
Typically, FHA loans require lower down payments than other types of loans and can also be provided to people with lower credit scores. This means that they can be a good way for people who couldn’t otherwise purchase property to get themselves on the housing ladder.
However, it’s worth noting that if you take out an FHA loan, you will have to pay an insurance premium on top of your loan repayments, which is there to protect the lender in case you default on your loan. This will usually be an upfront payment when you first take the loan out, of 1.75% of the loan value, plus a percentage of the loan amount each month (usually between 0.45% and 1.05%).
As with any mortgage, it can take a while for the funds to clear for these types of loans, which may not be ideal if you’re trying to invest in a time-sensitive property opportunity.
If you are trying to jump on a time-sensitive opportunity, then it can be worth looking into private lenders for real estate, otherwise known as hard money loans.
Generally, these types of loans are designed to be provided over a short-term period, and they are secured against existing assets.
This means they can be a good solution for people who already have a property portfolio that they are looking to add to but are not so useful for first-time buyers.
One of the major benefits of a hard money loan is that the money will be with you quickly, so you can take advantage of opportunities as they arise.
Club together with family and friends
If you have a group of family members or friends who you trust, then you could consider clubbing together in order to buy property.
Getting a down payment together between a group of you is much more achievable, and because your combined earning power is larger, it could mean that you can borrow much more. It can also help you to save on things like utilities and maintenance.
However, you should be aware that usually, it’s the buyer with the lowest credit score who determines the type of loan you can get. You are also in a financial agreement with other people, which comes with its own headaches!
Make your home a rental
You can sometimes get more favorable rates on a mortgage if you are proposing to rent out a portion of your property, and this can help you towards the cost of your mortgage payment.
It can be worth considering renting out a room or even separating your property into flats (provided that this is allowed under your mortgage agreement and under local planning law).