If you’re thinking about diving into the wonderful world of real estate investing, there are a few things to learn about before you purchase your first investment property. You’ll want to start making connections with local contractors, learn what work needs a licensed contractor or a permit and what you can do yourself, and take the time to familiarize yourself with the usual materials. Then, you’ll either need to find a real estate agent you trust or take the time to learn about the needs of your local property market — not just so you know whether a property’s price is worthwhile, but also to figure out the sorts of upgrades buyers in the area are looking for (and what they’re willing to pay for those upgrades). Then, of course, there’s the question of financing.

Making A Sound Investment

Finding funding for an investment property is different from buying the home you’ll live in. Whether you’re buying a property to fix up and sell again or you’re investing in a multi-apartment building to rent out, your financing needs aren’t going to align with the traditional mortgage. A big part of investing in property — any property, not just houses to flip — is making sure you have the right financing in place. There are a few things to consider regarding your financing, including:

Loan Duration

When you get a traditional mortgage, you can reasonably expect a loan to last anywhere from 15 to 30 years. If your plan is to buy, update, and sell a property in a matter of months, a 30 year mortgage is going to be serious overkill. Plus, some traditional mortgage lenders assess a fee or require you to pay the full amount of interest when paying off a loan early.

Buying Timeline

Many of the most lucrative investment properties are foreclosures or bank auctions. Whether you go that route or not, timeliness is important. A traditional bank loan can often take weeks or months to process and approve because they check financial records so rigorously. If you need loan approval quickly, this is not generally going to be the best option.

Financial History

With any loan, you can reasonably expect both banks and private lenders to want financial information from you. The financial requirements for investment properties are often more rigorous because the bank wants to know you can afford the new property and any work on top of your existing financial obligations.

Loan Dispersal

With fixer-uppers in particular, the way a loan pays out, and the amount it covers, can play a key role. Many traditional loans will only cover the cost of the land and property; if you want to undergo repairs or upgrades, you’ll end up covering those on your own. Even if your mortgage does cover extra work, you’ll likely need to show the permits and proof of licensed contractors on the job before the bank will pay.

Loans For Investment Properties

The answer, as you may have guessed, is to branch out from traditional mortgages and find a lender who specializes in loans specifically for investment properties. Hard money lenders answer this need. These are private lenders who offer the terms and flexibility needed by property investors for a range of different investment options. Hard money loans are available for terms as short as a few months up to a few years. More importantly, hard money loans will use the property itself as collateral. This means a loan can be approved in as little as a few hours or a couple of days, and they are more flexible in regard to credit score.

To find hard money lenders in your area, you can take to the Internet and end up with quite a list. There are also extensive hard money lender directories, which are typically divided up by state. The other common way to find hard money lenders in your area is to ask your real estate agent or connect with real estate investment groups. As with any other loan, it’s important to do your due diligence to find the right loan for your needs.

If you’re looking for hard money loans for your next project in Colorado, connect with TABS, LLC. Read through our available loan options, submit an application online, or give us a call to learn more.