Article published on November 17, 2022.
Real estate investment involves purchasing, selling, and managing property for profit.
The real estate industry in the US has gradually grown. The selling prices of houses in the US have been growing from 1963 to 2020 until Covid came. But after vaccines were introduced, we have seen increased housing demand across California, US. This has made the real estate investment industry grow.
There are different ways of investing in real estate in California, US.
Some of them are:
Rental property
This is where you buy a property like an apartment building and start renting it out to tenants. This makes you a landlord. At the end of the month, you will earn money through rent.
Flipping houses
This is where real estate investors buy property in the high-rise area, hold it and then sell it for a higher price. Flipping can also be done when an investor buys a house and renovates it hoping its value will rise.
Real estate investment groups
This real estate investment is where if you don’t want the hassle of being a landlord, a company buys a set of buildings or houses and allows investors to buy them through the company, thus joining the investment group.
The company will operate the investment group and cater to the repairs and maintenance of all the house units.
Ways of financing real estate investments in the US
Once you decide to invest in real estate, you need to consider financing your investment. There are a few ways of financing your investment, which are;
CONVENTIONAL BANK LOANS
Your credit score and history determine your credibility to get approved and what amount of interest you will pay for the mortgage. The lenders will also review your assets. The borrower must be able to show that they can afford to pay the loan on the investment property.
HARD MONEY LOAN
This short-term loan is mostly used in flipping real estate investments. The repair value is used to gauge whether you can repay the loan.
PRIVATE MONEY LOANS
These are money from one individual to another. The source for this type of real estate investment financing is usually family members or friends. The loan terms and payback period mostly depend on your relationship with the lender.
Commercial Real Estate Investment
Commercial real estate is income-producing property used for business rather than residential, such as shopping malls, office buildings, and hotels.
Financing this real estate mainly involves acquiring loans secured by liens on the property.
Some of these loans are;
- Conventional bank loans are loans secured by banks for commercial real estate financing. You need to have a strong credit history and score in the US. Most conventional banks require a 20% down payment and have very competitive interest rates.
- Hard money loans are usually offered for short term use at very high-interest rates. Your eligibility for commercial estate financing depends on your credit history.
- Online marketplace loan: The online marketplace loan helps to match borrowers with private lenders for loans ranging from six months to a few years.
Multifamily Real Estate Investment
A multifamily real estate investment is a multifamily property that contains more than one housing unit. Such as apartments and duplexes, which are mainly common in California. This is one good real estate investment for beginners.
There are different ways of financing multifamily real estate investment;
- Bank loans are the most common financing option since they offer flexible interest rates and mostly a 20% down payment.
- FHA loans are government-insured loans and are mostly preferred by investors because they offer the longest terms, lower fixed rates, and high leverage of up to 80%.
- CMBS loans are commercial mortgage loans secured by a first lien. The borrower needs to be highly creditworthy to qualify for the loan, and CMBS loans are known to have lower leverage.
Construction Real Estate Investment
Every day in the US, houses are being constructed, and people are heavily investing in them. Construction investment involves investors investing in construction projects.
There are a few construction real estate investments financing options;
- Bank loans: Banks calculate the interest to be paid on loan, depending on the value of the construction. So the faster you construct, the lesser the interest rate you will pay.
- Private lenders: Lenders mainly consider whether the construction project will succeed before lending. This is because of the high risk associated with construction.
Owner-user Real Estate Investment
Owner-user real estate investment is where the property owner owns and occupies the property and rents out separate spaces to tenants.
The owner of the property can finance his investment through the;
- FHA loans: These loans are backed by the federal housing administration. They allow as low as a 3.4% down payment on the loan. Many homeowners prefer FHA due to their low credit requirements.
- VA loans: these loans are backed by the veteran’s affairs department. These loans are only available to military members who meet the required criteria. They are mainly attractive because they are not attached to private mortgage insurance.
- Conventional loans: they are not backed by a government agency. This makes them harder for investors to obtain. They require a person to have a credit score of 620 and a DIT of less than 50%.
Private Money Real Estate Investment
This is where a borrower receives money based on the value of real estate owned by the borrower.
Some of the ways to get private money investment financing are;
- Private lenders: They are mostly private investors who are offering money for private investment. Most of their loans are short-term, with a period of return of up to one year.
- Non-recourse loans are mainly given with the aim of the lender benefiting from the reason the money is being borrowed. There are usually high-interest rates and fees due to the higher potential risk involved.
- Hard money loan: This is a short-term loan issued to the borrower by the lender. The lender doesn’t look at the creditworthiness but looks at the value of the property once it has been repaired.
Conclusion
In conclusion, there are so many real estate investment opportunities in the US and several favorable financing options. If you are looking at investing in real estate, do a background check to ensure you get the best financing option that suits your preferred real estate investment.
Do you want to apply for financing?
Contact Jason Lee and or any of our team members and we’ll help you get started.