Financing for real estate investments is always one of the areas of most interest for investors. It can have huge advantages and its share of pitfalls. Lending and credit options for funding property investments can also change substantially over time.
So, what are the pros and cons here? What types of loans and lines of credit are available? What alternatives may intelligent investors consider for growing their portfolios this year?
The Pros & Cons Of Financing Real Estate Investments
Financial leverage is one of the superior advantages and benefits of engaging in property investments.
This enables individuals and organizations to scale faster, lower their own risk, and create more high yield real estate investments.
It’s also no secret that poor money management, grossly over-leveraging, and misusing debt can have serious negative consequences as well. Taking on too much personal debt, and leaving no room for flexibility in debt service or exiting assets can be costly.
Success is all about finding the right balance.
Types Of Loans For Real Estate Investing
When it comes to financing real estate investments there can be a variety of options. This can vary depending on the types of real estate investments, properties, and strategies you are working on. As well as the wider economy.
Some of the most popular continues to be:
- Conventional mortgages
- Fix and flip loans from private money lenders
- Bridge loans for expanding portfolios
- Medium or long term commercial mortgage loans
- Flexible, revolving lines of credit
The Outlook For Financing Property Investments
While we may never see the easy lending days of 2005 again for retail home buyers and homeowners, access to loans for financing real estate investments has been very good for the past few years.
Those with capital have decided that they would much rather fund investors. There is less regulation, more efficiency, and higher returns to be found.
Recently we have seen a sizable shift in secondary markets. With even more Wall Street funds, institutions like pension funds, and others seeking to funnel their capital into this space. Especially into residential and multifamily loans. This is unlikely to change any time soon.
However, the markets are bracing for a couple of years of rate hikes by the Fed. Which could increasingly make financing more expensive.
Individual investors and small investors could find lending tougher if there are any declines in mortgage performance or a recession.
The best loans and terms are much more likely to go to stronger real estate investment firms that offer more efficient and lower risk solutions to capital markets seeking to deploy their capital.
The Alternatives
Financial leverage is one of the great perks of this space. Not using financing for real estate investments will often present greater risk and subpar returns.
However, for wise investors who do not want to mount up on debt, repayments, and personal guarantees, there are other solutions.
Such as real estate partnerships and syndications. Where you can collaborate with other investors to combine equity capital, with attractive and sensible financial leverage. It is a low risk, higher return option.
To learn more about these options, get in touch with our Chicago based real estate private equity firm, and have a Greystone real estate advisor show you the difference these approaches can make.