5 Loan Options for Real Estate Investing

Real estate investing is an excellent way to diversify your investment portfolio because of its low correlation with traditional equity investments. Additionally, there are multiple ways through which you can diversify assets within real estate, including geography, sector, and strategy. While financing your real estate investment can be challenging, you can fund it with a loan, provided you’re eligible. This article outlines five loan options for real estate investing.

Photo of some condos which are a popular investment type of real estate
Condos are a popular type of real estate for investors. | Photo: ArtisticOperations

1. DSCR loans

A DSCR loan is meant for mortgage brokers, and real estate investors looking to qualify for a mortgage depending on the cash flow their investment property generates instead of using tax returns, income proof, employment information, and more. Since DSCR can quickly identify your ability to repay without needing income verification, your lender will use it to help you qualify for a loan.

DSCR loans are perfect for investors who don’t wish to share employment information, payslips, tax returns, W2s, and more. They’re also ideal for a self-employed borrower with complicated incomes because it addresses the issue of dealing with complex tax returns. The DSCR loan is an excellent alternative for people with multiple investment properties who have reached the traditional credit limit.

2. Conventional bank loans

Conventional loans are usually what people think of when considering loan options for real estate investing. And it’s an excellent choice most of the time. However, your lender may require you to pay a certain percentage as a down payment. When getting a bank loan, your credit history and credit score will determine the kind of interest rate applicable to your mortgage and whether you’ll be approved.

Lenders will look at your assets and income to ascertain whether to grant the loan. Compared to other types of financing, banks offer loans at lower interest rates to attract clients who can’t qualify for different loan types, including home equity lines of credit or credit cards.

3. Small Business Administration (SBA) loans

Real estate investors are eligible for SBA-supported business loans, provided they qualify as small businesses. There are several SBA loan programs a real estate investor can benefit from. The 7 (a) program offers loans for startup costs, such as buying new land. The profit development company or 504 program gives financing for fixed asset purchases, including equipment and real estate.

SBA provides a microloan program you can leverage if your small business or startup can’t get financing elsewhere and has low capital needs. You can also get a low-interest disaster loan for real estate investment destroyed or damaged in a declared emergency.

4. Hard money loans

Hard money loans are more suitable for flipping an investment property and not buying and renting it out, developing on it, or holding it. While you can use hard money loans to purchase property and take a conventional loan to repay the hard money loan immediately, beginning with any other loan option is more cost-effective and convenient if you don’t want to flip the property.

5. Private money loans

A private money loan can be from family and friends. If none can lend you money for real estate investment, look for private money lenders by joining local real estate investment groups or clubs for networking. Interest rates and terms on these loans can vary significantly (from predatory to favorable) based on your relationship with the lender. A legal contract securing a private money loan authorizes the lender to foreclose on your property should you default on payments.

Endnote

Financing real estate can be challenging. However, these loan options can help finance your real estate investments.