Don’t Try to Make a Small Down Payment
It might be tempting to keep more cash in your wallet by making a small down payment, but when it comes to an investment property, this isn’t a great idea. Your lender probably won’t even let you take out a loan with a small down payment on an investment property in the first place… but if they do, the rates will be sky-high. Most lenders will want at least 20% down, if not more—and more is probably better, because it’ll get you more favorable loan terms and interest rates.
Include the Rehab Costs in Your Financing
Does your real estate investment strategy involve buying a fixer-upper for your next property? The truth of the matter is, it’s hard to find a move-in-ready investment property even if that’s what you’re looking for. No matter your strategy, you’re probably going to find a lot of properties that need rehabbing. So, why not try to include that cost in your financing?
First, figure out how much you’re probably going to have to spend on the rehab. Get a contractor’s estimate to find out just how in-depth the renovation is going to be. Then, with contractor’s estimate in hand, look for a mortgage lender that is willing to include rehab costs in the loan. Not all lenders will do this, so you’ll have to shop around. But there are some good ones out there—the FHA actually has a lending program that allows construction costs as part of the loan.
This has two advantages: first of all, you’ll have enough money to fix up your fixer-upper! And secondly, it makes your life a whole lot easier because the whole loan will be under one note. Payments will be easier and interest rates will probably be lower, too.
Consider Seller Financing Instead of Traditional Financing
Some investors totally forget about seller financing (also known as owner financing), because it isn’t available to everyone. However, it can happen if you watch for it! Sometimes, you can find a sale where the owners are willing to finance the transaction. For example, maybe the current owner of the property has paid off their entire mortgage and is downsizing, so they’re willing to act as lender by giving you a short-term loan with monthly payments for a fixed period of time. This can be a great deal because you aren’t paying a middleman. You’ll still have to give them a down payment, and there can be risks to this type of sale, but it can save you a lot of money.
So there you have it, three smart financing strategies for buying a new investment property in Washington, DC! Looking for your new big investment? Check out the homes we have for sale or get in contact with us today; we’d love to help you out!