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Finance Your Real Estate Investment Properties

I have enough money; shouldn’t I buy my real estate investment for cash? No, I absolutely advice against investing large sums of cash into a single real estate investment. There are two reasons why not. First, you give away most of your profits by not leveraging your real estate investment. Second, it is far too risky to put every egg into one basket.

Let me explain the leverage issue for a moment. I will give you an example of a $100,000 investment property that typically increases its value (appreciates) by 7% average a year. Maybe more, maybe less depending where you live. Paying all cash for this property will yield in a 7% appreciation profit plus the net profit from renting the place. Now you’re looking at roughly 15% of returns.

If you’re conservative with your investments you might be satisfied with this kind of a return. These days you might get equal or better returns with other conservative investments minus the hassle of being a landlord. But you don’t mind being a landlord, because you understand and utilize the leveraging method with financing your real estate investment.

With the example above you will make roughly $15,000 a year in profits from your investment. Now let’s take a closer look at what leveraging can do for you. Today a typical real estate investor can get financing as high as 95% – 97% of the purchase price. Occasionally 100% financing is available as well. But this would be totally unfair in this example to compare this with all cash purchasing.

15% return sounds like a lot, but wait till you see this. Let’s assume that the rental income will cover all your expenses including the mortgage payments. Taking the same example from before your net return would be the 7% appreciation profits of your property. This would translate into a $7,000 a year profit. With a 95% financing in place you would get $7,000 return on $5,000 (your 5% down payment) invested. This is a whopping 140%

return on investment.

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How does Hard Money Loans work? When do you pay them back?

I am looking at different ways to come up with money for real estate investments and I want to know how hard money lending works. When do you start paying back the loan? If I was to rehab a home would I pay it back after I sell the property?

A “hard money” loan is just another term for a sub-prime loan, available from what we used to call a “lender of last resort”, who will charge an exorbitant interest rate for a loan no one else will make.

It functions just like a normal loan, with regular monthly payments. You must pay off the balance when the property is sold.

You might be better off charging the purchase as a cash advance on several credit cards, it amounts to about the same thing.

Investment property | Private lenders | money lender.