Getting together the starting capital to fund your initial foray into the world of real estate investing can be intimidating, but there are ways to ease complications and stress. To aid in making your first steps into real estate investing more confident and secure, let’s look at 5 ways to fund your first investment property in Phoenix.
It should come as no surprise that you can make the choice to simply go to a major financial institution or mortgage lender and apply for a regular home loan in order to fund your first investment property in Phoenix.
The terms and conditions of each mortgage will vary based on a lot of different circumstances, including if you currently own a primary residence, your income, debts, and credit score. When it comes time to determine which type of mortgage you’re looking to acquire, do consider both fixed-rate and adjustable-rate mortgages.
Fixed-rate mortgages are certainly going to benefit an investor looking to hold on to a property for the long haul, while adjustable rate mortgages (ARMs) can provide lower rates if your plan is to purchase the property for quick resale. Adjustable rates can change as often as monthly, so understanding when increased rates kick in is key to getting the most from an ARM.
Leverage Existing Equity
If you’re already a property owner, you could look at opening up a home equity line of credit, or HELOC, with a bank or lender. In some cases, you could be able to borrow up to 80 or 90% of your current home’s value to be put toward the acquisition of your first investment property in Phoenix.
In almost all cases, you can expect the interest rates of a HELOC to be higher than a typical mortgage, but this HELOC could then also be used as a more permanent pool of available funds moving into the future. As always, be sure to read through the terms of a HELOC so you don’t find yourself in a legally vulnerable position if the line of credit’s funds can only be used on your own primary residence.
Something that has become more popular over the last few years is a formal rent-to-own agreement between a property’s buyer and seller. This situation allows for both buyer and seller to heavily negotiate until they feel terms are amicable for both parties.
However, this process needs to include an attorney experienced in real estate law in order to cover both buyer and seller with the necessary legal protections. The more common form of seller financing that we see these days is the contract stipulating that the buyer will purchase the property from the seller in a specified timeframe.
The price of the property is either an exact amount of money stated in the contract or the appraised value when the period of time is up.
Specialized FHA Loan
A more overlooked potential route is an FHA 203k loan. These loans exist for buyers purchasing fixer-uppers and will often cover not only the price of the home but the cost of some repairs to the property.
A 203k allows for low down payments and has decreased credit score requirements. Since this is an FHA loan, you would be required to live on the property for a certain period of time, which may be difficult for your first investment property in Phoenix. But if you’re already planning to live on the premises, this could be an extremely attractive option.
Find Outside Investors
Finally, to purchase a first investment property, there is always the possibility of hunting down capital from third parties willing to trust you with their investment.
Bringing in outside investors can range from providing you with total autonomy to constantly micromanaging your every move. Take this into consideration when determining how you would like to operate, and be sure to meet with any investors to discuss the details you have worked out prior to signing on the dotted line with anyone.