Understanding Your Loan Options

If you’re getting ready to start investing, learning what to expect from real estate investment loans is an important step. As an investor, you have different options to consider. In many cases, investment property financing comes from a private lender, which means that they aren’t bound by the same requirements as a bank or traditional lender. Your ability to qualify depends more on your experience and the potential of the property, and less on your personal income and credit.

There are different kinds of private money loans. For example, fix and flip financing is a short-term loan, usually six to 12 months long. You can expect to pay 6-12% in an interest rate on this loan. Most of the time, you can borrow up to 70% of the property’s after-repair value.

For rental property loans, it’s common to apply for a short-term loan to handle the rehab work, then refinance to a traditional 30-year, fixed-rate, amortized loan. If you don’t have income to show for it, you might apply for a bridge financing real estate loan, to cover your costs until you have a tenant’s income that can help you qualify for a mortgage.

Private loans require down payments and fees that may be different from traditional financing. You’ll typically pay at least 20% down for one to four doors, although you might get more flexibility if you’re using a BRRRR strategy. Multifamily loans usually call for a 25% down payment. By comparison, a fix and flip could be 0-15%. Keep in mind that you will probably have to pay about 3% in points, plus an appraisal and other fees.