As a real estate investor, you may have been able to swing a down payment – along with using your personal credit – for your first, and possibly even your second investment purchase. But after you’ve 
obtained a certain number of rental properties, there will typically come a time in an investor’s life where they need to start considering creative financing.
Gone are the days of “no doc” mortgages from lenders. Today, traditional banks and lenders will typically want to see that you have an ample amount of collateral to back up the purchase of a rental property – and, because it won’t be your primary residence, many lenders may also require you to come up with a minimum of 20 to 30 percent down.
Enter creative financing.
There are a number of ways that you can finance that next great deal – even if you aren’t flush with cash, and even though your credit score may be far from perfect. One option is to ask the seller if they would consider a seller-financed deal.
Here, you would make your mortgage payments to the seller of the property, in return for equity build up in the home. Unlike most traditional home mortgages, a seller financed arrangement won’t usually last for 30 years. While the payments may be amortized for that time period, these types of deals will generally include a balloon payment after five. That being the case, buyers can oftentimes then qualify for a conventional loan, at which time you would refinance, getting the seller paid off and out of the deal.
There may also be the option of a hard money lender. While a bank or other traditional lender may look closely at your personal financial situation, hard money lenders look more at the value of the underlying real estate. In particular, these types of lenders will look at the after repair value of a “fixer upper.”
By using the actual property as collateral, rather than your personal credit, hard money lenders know that they are covered if the borrower stops paying on the loan. The financing that you obtain from a hard money lender will typically be at a much higher interest rate than that of a comparable conventional mortgage. However, these loans are also usually made for only a short-term basis. So, while the terms may not be ideal, this could provide you with a way to secure a property until you are able to refinance down the road.
If you are in the process of building up your rental property portfolio, but you don’t have the additional time to spend maintaining the structures or communicating with your tenants, consider handing over those duties to an experienced property management team. For more information on how we work with investors in Orlando and the Central Florida area, Contact Us.