When you invest in a rental property for the first time, you may need to think beyond a traditional mortgage. Fortunately, those purchasing apartment buildings and rental homes can take advantage of a few creative financing options.
Consider these loan types when shopping for rental financing.
This option works best when purchasing from a motivated seller who owns the property outright. With owner financing, you and the seller enter a mortgage agreement with flexible terms, purchase price and interest rate that provides cash flow for the property owner. Keep in mind that for your first deal, you will need the seller to take a leap of faith for this type of financing.
Primary residence loans
If you have a multifamily property on your radar, consider living in one part of the home while renting the other units. In this scenario, you could qualify for an FHA mortgage for a primary residence with just 3.5% down if the property has up to four units. The benefits of this approach include more flexible credit requirements and lower interest rates compared to those for investment loans.
You can consider this arrangement to buy more than one rental property at once or expand your portfolio. In fact, you can cover the mortgage on any property that creates income, since each asset serves as collateral for the others. Both mortgage brokers and investment brokers offer these loans.
With creative financing, a detailed loan agreement becomes even more important. Carefully review the terms and conditions before entering any new rental property transaction.