The popularity of the HGTV and DIY channels has made the housing industry a desirable arena to play in. Flip That House, House Hunters, Property Brothers, etc. all do their best to really get the juices flowing for soon-to-be landlords and house flippers. Boy, do they make it not only look fun, but easy!
The excitement of getting caught up in owning your own business can make some people do almost anything to come up with a down payment that they somehow have managed to NOT prepare for. Many seasoned landlords have built their business from scratch and purchase the new homes with cash but most new to the game do not have that luxury. This is where they get in a pickle.
Where Can I Get Money to Buy My New Investment Property or Flip?
It is common for people to find a home they want to buy before going through the pre-approval process or figuring out where they are going to get the money for a down payment. Amazingly, only just over half of our new clients interested in buying a home actually start the pre-approval process before they view a home of interest.
What that means is determining how one might finance a new home purchase is a lagging concern for almost half of the home buyers.
Stunning, isn’t it?
- HELOC or Home Equity Loans: This is typically the easiest and fastest way to access cash quickly. The application process is not as intense as a regular, conventional loan. You can typically borrow up to 90% of the value of the home on a primary residence and 80% on a second home. The interest is also tax-deductible.
- Cash out refinance: These transactions can be done on a primary home, second home or an investment property. The process is just like applying for a regular mortgage so it takes about 30-45 days to complete. Both of these options require you to have equity in your homes which has been a struggle for many in the last 5 years due to the recession.
- 401k or IRA’s: You can borrow or withdraw money from these accounts or reduce/stop making retirement contributions for a period of time to save money. Borrowing makes more sense because you repay yourself. Check with your advisor about the specific rules pertaining to your specific account. This is very common way to access funds for a down payment these days.
Do You Have Anything Else of Value You Can Sell?
- Savings Bonds: Many people forget they have old savings bonds that have been sitting in a safe deposit at the bank for years.
- Car: Do you have an extra car that you don’t drive all the time?
- Boat: It may be more important to get into a new home than to have a boat that only gets used 2-3 months out of the year. Only you can answer that question.
- Motorcycle/snowmobiles: These are certainly not necessities. How bad do you want your new investment property?
Photo Credit: phantomswife"I Want to be a Real Estate Investor but I Have No Money Saved" by Kirk Chivas