Real Estate has, despite the various economic recessions over the years, been a reliable method of increasing an investment; providing you commit to a long term plan. In fact, real estate investment is not possible without capital and, for the majority of people; this means that finance is a necessary evil. To ensure maximum returns from any real estate investment it is essential to understand the different methods of funding your investment:
Investing in property through cash funds is a relatively safe proposition. Of course, there is no actual cash payment; the funds are electronic. The term cash buyer simply means someone who has the funds available and does not need to borrow money from another source. For most investors this is not an option.
A conventional mortgage will require a down payment of approximately 20%. The balance of the funds will be secured against the house and payments will be made monthly for, on average, between ten and twenty years. The lower the interest rate on your mortgage the less the purchase will cost you.
Whereas most lenders need to be backed by someone who does have the funds, such as the government. A portfolio lender is lending from their own funds; this means they are an option for those who are unable to secure funding through traditional methods. Of course a portfolio lender is able to set their own terms as the money belongs to them. It can be harder to locate this type of lender.
If you are purchasing a property to live in then it is possible to obtain a Federal Housing Administration loan. These loans have exceptionally low down payment terms; currently as little as 3.5%. This can make it easier to get onto the property ladder but you will need to take out a PMI insurance policy which may make your monthly costs slightly higher than a conventional mortgage. A variant of this is the 203K loan which is specifically designed for a house which needs substantial refurbishing work. The cost of major repairs can be included in the loan.
It is possible to arrange a finance deal with the owner of the house you wish to buy. This is usually only an option when a seller owns their property without any finance on it. They could then choose to accept monthly payments from you for a set time and a set amount. At the end of this the house would be yours, in the same way a conventional mortgage works.
This term applies to funds which are obtained from businesses or individuals who are looking to invest in real estate. However, hard loans normally have high interest rates and are short term. The loan will be based on the value of the property and can often be available within days as it does not require the standard income and identification verifications. A variant of hard money is ‘private money’. This is likely to operate under the same terms but the funds will come from someone who is not a professional lender; this is often close family or friends.
Home Equity Loans
In order to purchase an investment property it can be necessary, or simpler, to release some of the equity which has built up in your main home. Providing the equity is there this can be an excellent method of obtaining funds to purchase a house in need of repair. The bank is only generally concerned with your ability to repay, not what you are spending the funds on.
If you are struggling to find or acquire the funds required for a down payment then it can be a good idea to take on an equity partner. They can provide either the funds for the purchase or for the down payment. The equity partner may be either actively involved in the investment property or leave the whole process to you. Equity partners do not charge interest on their funds; their profit is made from the funds the property makes.
Any property bought as an investment can be funded via a commercial lender. This type of lending will focus primarily on the property and its income capabilities. If the property is able to support the loan and you are judged to be a fair business person then the loan is likely to be approved. Interest and fees will apply, as they do to any loan.
There are many ways to fund property investment or buying property in Turkey and it is important to know all of them. This will allow you to continually advance your investment portfolio and advise others as required.