10 Investment Property Loans and Financing Alternatives

In a healthy housing market, investing in real estate can be a great decision if you’re looking to make some extra money. Not only is it a potentially lucrative source of passive income, but it also allows you to retain ownership of a property that may appreciate in the future. However, it’s wise to do your homework before investing in a property to avoid losing money. Below, we’ll cover different types of loans for financing investment properties, rental properties, and second homes so that you know what to look for in a property and a financing solution.

Perhaps the most important thing to remember is that if you’re looking for quick cash, an investment property might not be your best bet; it can take years to see a positive return on your investment. Plus, if you don’t plan on maintaining the property yourself (experts also recommend setting aside 10–15% of the tenants’ annual rent amount for upkeep), you’ll also need to consider the costs of outsourcing property management, which ranges from $80–$100 on average per month. That’s in addition to your down payment and interest, property taxes, insurance, and utilities if you’re covering them for the tenant.

For a $100,000 rental property, for example, you may need $30,000 or more just to close on the property and make necessary repairs before renting it out. A simple and common way to evaluate a potential rental property is known as the “one percent rule.” This states that if the gross monthly rent — prior to expenses — earned from the property is equivalent to at least one percent of the purchase price, it’s an opportunity worth exploring.

Fortunately, if you’re wondering how to finance get a loan for an investment property, you have options. The following are some of the best loans forptions for financing investment properties.

Types of Investment Property Loans

Conventional Bank Loans

While the specifics depend on the lender, standard loans can certainly be used as a rental property loan. There are some advantages that typically go hand in hand with using a conventional loan for an investment property, like low interest rates and costs. Traditional lenders also allow you to take out multiple mortgages, though most have a limit. However, there’s typically fairly high down payment requirements of at least 15-25% for investment properties, and your personal credit history and score factor into your ability to get approved for the loan.

FHA Multi-unit Financing

FHA loans for investment properties are backed by the Federal Housing Administration and can be used for new construction, purchases, and gut rehabs of existing properties. Unlike traditional loans, this financing option may only require a 3.5% down payment and may be a possibility for potential owners with a lower credit score than needed for a traditional loan. The catch? To qualify for an FHA loan for an investment property, you are required to reside in one of the units for at least a year.

VA Multi-unit Financing

If you’re an active-duty service member, veteran, or spouse, you may qualify for a VA loan for an investment property. It’s offered through both mortgage brokers and conventional lenders, and has no down payment, mortgage insurance, or firm credit score requirement. Like the FHA loan, you must reside in one of them to be eligible and may be required to have cash reserves to cover several months of expenses.

Portfolio Loans

Portfolio loans are mortgages that are not intended to be sold on the secondary market. They are offered by private lenders, who may be community banks or credit unions, or mortgage brokers. They may be attractive due to their flexibility on term, down payment, and length, and interest rate along with their relatively lenient requirements. On the other hand, this lenient criteria often means that borrowers may have to stomach higher interest rates, higher fees, prepayment penalties, and even balloon payments; this means that you’ll be stuck paying the full balance at the end of the short-term loan.

LLC Loans

You may have heard of an LLC loan for an investment property, but it’s a bit different from other options, since it’s technically a loan to the LLC and not to you personally. Many real estate investors finance rental properties under an LLC in order to limit personal liability, establish business credit, and increase protection from lawsuits or disputes. While the process is fairly straightforward — complete the easy steps to set up an LLC, and apply for a mortgage — you will first need to establish credit history for lenders to evaluate, which can be time consuming if you’re hoping to finance an investment property quickly.

“Fix and Flip” Loans

Also known as a “hard money” loan, these specialized fix-and-flip loans typically come with short terms (a few years or less), interest rates that average 10–15%, and points. One advantage is that there aren’t as many restrictions or hurdles to deal with as traditional loans; lenders also may determine the amount you can borrow by looking at the home’s after-repaired value.

Frequently Asked Questions About Investment Property Loans

Can I get a home equity loan on an investment property?

Yes, you can. While you’ll be paying interest on the loan, the rates are usually fixed — and often lower than a traditional personal loan.

Is it smart to use a HELOC for investment property?

While the right home financing solution for you depends on your own situation and goals, a home equity line of credit (HELOC) can be a good choice if you’re looking for flexibility in terms of how much money you can access and how often. However, the variable rate can present challenges if you’re seeking a predictable monthly payment.

How much can I borrow against my investment property?

The amount you can borrow against your investment property varies by lender, but a typical maximum is about 80% of your home’s value.

Can you have a HELOC on a rental property?

Yes, you can. This solution has the advantage of allowing you to borrow against your investment or rental property and pulling out cash as you need it.

Can you cash out on equity from an investment property?

Yes, you can, and the process works the same as a cash-out refinance on your primary residence. Like a refi on your own home, you may be able to lock in a lower interest rate on your investment property’s mortgage as well.

Learn how the BRRRR method of real estate investing uses refinancing to fund properties >>

Alternative Rental Property Financing

Home Equity Loan

A home equity loan allows you to tap into your equity to fund an investment property, and has the advantage of a fixed interest rate that is usually lower than that of a personal loan. By using a home equity loan for a second home, you’re essentially taking out a second mortgage, so it will have established, predictable rules for paying it back at the end of the term.

Cash-out refinance

A cash-out refinance of your current mortgage may give you the opportunity to fund an investment property and simultaneously secure a lower interest rate on your mortgage. Depending on the length of the mortgage you choose, however, you’re also possibly lengthening your payoff timeline. You’re also still stuck with a lengthy application and approval process and closing, origination, and possibly even appraisal fees.

HELOC

With a home equity line of credit (HELOC), you get flexibility when it comes to accessing funds, tax benefits, and the chance to improve your credit score. But it, too, has disadvantages, including unpredictable monthly payments due to the variability in interest rates. You also run the risk of your lender freezing your HELOC if your credit score or home value declines.

Home Equity Investments

Have you ever considered using the equity in your home to buy an investment property? Unlike a loan, a home equity investment from Hometap doesn’t come with any interest or monthly payments. You’ll need to settle the Investment within 10 years, through a refinance, buyout with savings, or sale of your home.

If you’re in the market for a rental property loan or financing alternative for a second home, start by determining what your funding needs are and what you might qualify for. Then start running the numbers to find the loan or investment solution that works for you.

Take our five-minute quiz to see if a Hometap Investment might be a good investment property loan alternative for you.

YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

June 30, 2021September 23, 2021

Hometap Review 2021: Tap Your Home Equity Without Extra Payments

If you’re looking to access the equity in your home but you’re not looking forward to the new monthly payments that come with a loan, it’s time to take a close look at Hometap. It provides an opportunity to receive debt-free cash by selling a percentage of the equity in your home. The cash can be used for just about any purpose. Pay off credit card debt. Buy a second home. Or even start a new business.

When you sell the home or settle the investment, you pay Hometap an agreed-upon percentage of the then-current appraised value of the home.

Boston-based Hometap was founded in 2017 and is a home equity investment service. That is, it provides customers with cash for the equity in their homes but without the burden of monthly payments. Hometap has a Better Business Bureau rating of A+, the highest rating on a scale of A+ to F. It’s also received 4.9 out of five stars on Trustpilot, with 92% of reviewers giving it an “excellent” rating.

This article originally appeared on InvestorJunkie.com. Read the full article.

June 23, 2021November 22, 2021

10 Companies Solving Fascinating Engineering Challenges

Engineers are a rare breed. It’s not just the paycheck or the benefits that inspire their finest work, but the actual challenges they’re offered to solve. Engineering talent has never been more valuable than it is today, so here are ten companies that are currently offering engineers the kind of big, meaty problems the best of them were born to take on.

What are the engineering challenges Hometap is working on?

While working to introduce unique investment products, our engineering team must completely rethink the myriad traditional financial procedures and requirements — as well as the technology used to deliver them. We need to innovate in the areas of flexible process management, real-time contextual data harvesting, creative integrations with third-party CRMs, novel client assessment, procedural optimizations, automated partner relationships, and customer acquisition. Our technology is key to supporting nearly every phase of the cross-functional growth we’ll require to succeed.

This article originally appeared on Comparably.com. Read the full article.

June 21, 2021March 8, 2022

Meet Amanda Clair

Our Investment Managers are experts in helping you tap into your home equity, but you may have more in common with them than you think. Learn a little more about your Investment Manager, their life outside of Hometap, and why they love working with homeowners like you.

What’s the best part of your job? How does being an Investment Manager at Hometap differ from your past work experiences?

The most fulfilling aspect of my job is the ability to assist homeowners in achieving their many different goals. I find it interesting talking to homeowners who might be coming to Hometap for different reasons, but all with the objective of accessing their hard-earned equity. I love being a part of a passionate and driven team that is dedicated to assisting as many homeowners as possible.

Is there a particular homeowner story that really made an impact on you? What is it and why?

It’s so hard to choose! There are many people who had aspirations that couldn’t be met by traditional financing resources, but Hometap was able to assist them without burdening them with debt. It’s great to provide homeowners with an alternative method to reach their objectives.

What are your favorite things to do when you’re not working?

Some of my favorite pastimes when I’m not working include trying new recipes, figuring out how to exercise from home, and playing with my two dogs, Bella and Georgia.

What’s one thing you wish people knew about Hometap?

I hope homeowners know what a great team of people they are working with here at Hometap. I never cease to be amazed by the levels of thoughtfulness and initiative I see every day!

June 21, 2021

Meet Matt Cutler

What’s the best part of your job? How does being an Investment Manager at Hometap differ from your past work experiences?

The best part of my job is by far the ability to have a positive impact on homeowners’ lives. It’s been a rewarding feeling to help someone achieve their personal and financial goals. I did not get this satisfaction in my previous work experiences since the products provided did not have the same type of impact.

Outside of the satisfaction I get from helping homeowners, I enjoy getting to know people from different backgrounds all around the country. I learn something new from people I speak to every single day.

Is there a particular homeowner story that really made an impact on you? What is it and why?

I recently had a call with a homeowner who needed to access his home’s equity to help build an addition. His family was outgrowing their current space but he didn’t want to uproot the family and move. I was excited for him since the investment could have such a positive impact on his whole family.

What are your favorite things to do when you’re not working?

I enjoy staying active when I’m not working. I play basketball, golf, and softball. I like to travel all over and spend time with family. I also enjoy learning from listening to podcasts on all topicsm including real estate investing.

Describe your dream home.

My dream home is close to the beach with plenty of space for friends and family to spend time. The house would provide an escape to help my guests disconnect and relax.

What’s one thing you wish people knew about Hometap?

Every employee at Hometap embraces the company mission to help make homeownership less stressful and more accessible. The guiding principles of Hometap have allowed the company to provide positive experiences consistently to homeowners.

June 7, 2021July 27, 2021

Best Tech Startups in Boston, Ranked

Over the last decade, the industrial landscape in Boston has witnessed tremendous change as it shifts toward a more tech-heavy orientation. A resilient economy and a large number of tech workers makes Boston the perfect place for tech startups to launch.

#2. Best Real Estate Startup: Hometap, founded 2017

Founded in 2017, Hometap offers an innovative solution to funding. The platform allows individuals to access money from cumulative equity by disposing a portion of the capital to the firm. This means that the company receives a certain ratio of the sale or the market price.

This article originally appeared on Benzinga.com. Read the full article here.

June 2, 2021September 23, 2021

4 “No Money” Ways to Invest in Real Estate

Interested in investing in real estate but you’re afraid you have no money? There are creative ways to acquire investment properties without necessarily having the cash in your bank account.

When I closed on my first property, I was waiting to hear back from the bank on how much I need to bring. My banker works with numerous investors so I trusted she knew what she was doing. When I showed up at the bank, I just signed papers and never had to write a check.

I was able to make this “no money” purchase through the power leverage! Specifically, I was able to leverage the equity in my primary residence to acquire my first rental property.

This article originally appeared on parentportfolio.com. Read the full article.

June 1, 2021June 23, 2022

15 Questions with Hometap’s VP of Sales

As Vice President of Sales, Dan oversees Hometap’s team of Investment Managers and makes sure they have all the skills, tools, and motivation they need to guide our homeowners through the Investment process.

Q1: You have a degree in Sports Entertainment and Event Management, and worked in events before moving into sales. Are there any skills that you developed during that time that have translated across industries?

Events are all about creating an experience and being willing to do whatever it takes to deliver for your attendees. I learned the importance of providing great customer service — and built up a strong tolerance to working long hours on my feet.

Q2: What’s the biggest challenge you face as VP of Sales?

The biggest challenge as VP of Sales is ensuring clear alignment across the organization. It’s even more of a challenge with everyone working remotely, so many team members coming onboard each month, and new initiatives surfacing each week.

Prioritizing follow-up meetings, continuously setting clear goals and expectations, and making sure the team is meeting frequently to share feedback on what’s working and the challenges we’re facing is key to overcoming these challenges.

Q3: What’s the most rewarding part of the role?

The most rewarding part of the role is reading homeowner reviews that highlight our easy and efficient process, our world-class customer experience, and the positive impact we are making in homeowners’ lives.

Q4: How do you stay apprised of the most current practices in sales and/or fintech? What are you reading to, listening to, or watching?

I have a strong network of sales leaders that I stay really connected to. We are always sharing challenges we’re facing and best practices we use to handle them, along with ideas, feedback on new product implementations, and effective leadership strategies.

I tend to listen to more podcasts and audiobooks these days. I typically gravitate towards leadership, team building, and sales strategy content. Simon Senik, GaryV, and Jeffery Hoffman are my favorite content creators to listen to.

Q5: Growing up, I wanted to be a _______.

Sports Agent. This always seemed like such a fun and glamorous career. Having a passion for sports and watching sports movies as a kid like Jerry Maguire, the agent was always portrayed as this flashy, confident person who plays a key role in making things happen for professional athletes. As a kid, I was a bit on the smaller side and pretty self aware. So I figured that if I was not going to make it as a professional athlete, this was the next best thing

AT HOMETAP

Q6: You’ve managed to not only maintain, but grow a tight-knit team of wildly passionate Investment Managers that are in constant contact and always rooting for each other. What’s your secret?

It all starts with hiring the right people and setting clear expectations on what success looks like. We have a tremendous team of talented, hardworking, and loyal individuals. Our hiring strategy is focused more on finding strong character and specific attributes versus hiring for any specific set of skills. I believe it is important to consistently communicate a clear vision of where we are going, in order to create the alignment needed to get there.

We empower our team to be resourceful and to create solutions. We all trust each other to deliver on our mission each and every day. Everyone is willing to help out and root for one another because there is a strong belief that if the situation was reversed, they would do the same for them.

Q7: What are the top qualities you look for when hiring an Investment Manager?

Motivated, curious, coachable, and resourceful are the qualities I look for when hiring an Investment Manager. We believe in our sales training and process and we have a very clear and important mission at Hometap. This allows us to focus all our energy on identifying these qualities and setting everyone up for success.

Q8: Do you have a go-to interview question? What is it?

I have two interview questions I always like to ask: (1) What is going to separate you from everyone else? and (2) Who would win in a fight, an alligator or a bear? There are specific attributes we look for when hiring sales talent. These questions are really helpful to identify key attributes that make up a successful sales person at Hometap.

The candidate’s answer to the first question tells me how confident they are and how aware they are of their strengths and weaknesses. Their answer to the second question tells me how curious they are in any given situation. There is no right or wrong answer to who will win in a fight, but what I’m looking for is the curiosity that is displayed as they think critically about their response.

Q9: If you could trade jobs with anyone else at Hometap for a week, what position would it be?

It would have to be with one of our Application Specialists. It’s such a critical role in the Investment process. As an Application Specialist, you get a chance to influence the sales process and customer experience, all from behind the scenes. I believe it would be a great learning experience for me and provide me with greater perspective on how to be a better teammate.

Q10: What’s one quality someone needs to be successful at Hometap?

Empathy. Everyone at Hometap is extremely passionate about our mission to make homeownership less stressful. We all have ambitious goals for ourselves and our teams, and work really hard to accomplish them. Empathy is essential for success at Hometap because it allows you to really listen with the intent to understand the situation and care deeply about the positive or negative impacts from someone else’s perspective.

Q11: How do you stay in tune with the needs of our homeowners when you’re not in a position where you’re speaking with them daily?

I’m always in discovery mode with my team to try and stay in tune with the needs of our homeowners. I am obsessed with listening to homeowner calls, and I’m known to guide a couple homeowners through the Investment process every couple months. This helps me stay sharp on the process and to understand how we can improve firsthand. I believe this makes me a better coach and a better business champion for our Product team as well.

OFFICE CULTURE

Q12: What qualities do you look for in a company’s office culture?

I like to feel the energy when I walk in the office. If it’s not there, I’ll make it a priority to create it. I enjoy seeing team members collaborating with each other and creating solutions together.

Q13: How has shifting to a remote environment changed the dynamics of your team?

It has completely changed since shifting to remote. We’re all spread out now, so we had to create new ways to share, learn, and work together. We learned how to onboard new team members in a remote environment and we have worked really hard to try and re-create the office culture through Zoom, Slack, and other systems.

Q14: What are the best and worst parts of working from home?

The best part is avoiding the commute and parking downtown. This allows me to spend more time with my family than I would if we were in the office. The worst part of working from home is not being around the team and missing out on all the relationship building and organic learning you get from being in the office.

Q15: What are you most looking forward to about eventually returning to the office?

I’m most looking forward to designing and building out the sales floor. We’ve significantly grown our sales team since we transitioned to being remote in early 2020. It will be exciting to design the layout and theme to foster a world-class customer experience, strong collaboration, and a commitment to our mission.

We’re hiring! Want to learn more about our Investment Managers?

June 1, 2021June 23, 2022

Should You Sell Your Home or Tap Into Your Home Equity?

Today’s real estate market has a lot of homeowners debating whether they should cash in on their home’s appreciation by selling their home or accessing their home equity. There are several factors to consider that can help you make the decision that’s right for you. Below, explore the advantages and disadvantages of each option, as well as the most common ways to access your equity so you can answer the question Should I sell my home? with confidence.

Selling: Pros and Cons

While the idea of downsizing to a smaller home or conversely, finding a house with more space to spread out may seem appealing in theory, the current market can make it a whole lot tougher in reality.

At the moment, the real estate market is red-hot, with a median sale price of $370,528 — an increase of more than 22% year-over-year from April 2020. More than 600,000 homes sold in the U.S. in April, a jump of 38.2% from the previous year. Mortgage rates have also dropped 0.2 points, making it more tempting than ever for prospective (and stir-crazy) buyers to lock in an offer on a new house.

Given the competitive nature of real estate, not only are houses selling for hundreds of thousands of dollars over asking price. But more and more, sellers are adding contingencies that allow them to stay in their home until they find a new property.

Often, short-term financing solutions like bridge loans can allow buyers to forego the contingencies and move more quickly, which can be a huge plus in a hot market. But it comes with risks, too. Some contingencies include forgoing home inspections, which may end in buyers’ remorse for those urgent to move into a new home.

There’s also the costs of moving to consider. If you plan on hiring movers, the average price tag is more than $1,000, depending on how much you’re taking with you. And of course, that’s not taking into account the hassle and emotional toil of the whole process.

In short, those looking to downsize or move to a location with a less competitive market have a great opportunity to cash in on a hot market, but it’s important to have a strong handle on your numbers and your moving plan.

Tapping into Your Equity: Pros and Cons

Moving isn’t the only way to make the most of your home’s growing value. You might be able to transform your current home into your dream home by tapping into your hard-earned equity to make the renovations you’ve been putting off — or build a long-desired addition.

If you decide that you want a seasonal getaway, you can also use your equity to put a down payment on a vacation home. There are a handful of different ways to get equity out of your home. Let’s explore the most common ones.

Home equity loan

One of the most common ways homeowners tap into their equity is through a home equity loan, as its fixed rate and lump sum payment often makes sense for funding home improvement projects. However, the qualification and approval process can present hurdles, as most lenders require a firm minimum credit score and stringent criteria.

HELOC

You can also open a home equity line of credit (HELOC) to access your home equity. This option offers flexibility in terms of the amount of money and how often you can borrow, but also comes with a level of unpredictability due to rate variability. It can also be risky because your lender can freeze your HELOC if your credit score or home value decreases.

Cash-out refinance

A cash-out refinance is another popular option for tapping into your equity. If you go this route, you have the chance not only to cover the cost of your renovation, but also to secure a lower interest rate on your mortgage. However, since you’re essentially paying off your mortgage with your current one, your timeline will be extended and you’ll have to pay application, closing, origination, and possibly even appraisal fees.

Learn more about when a cash-out refinance makes financial sense >>

Home equity investment

With a home equity investment, you can get a portion of your equity in cash in exchange for a percentage of your home’s future value — usually within a few weeks. You don’t have to deal with any monthly payments or interest, and can use the funds for whatever you’d like. This solution allows you to stay in your home and bypass the challenges and extra costs associated with moving.

Ultimately, Should I sell my home or tap into my equity? is a question only you can answer based on your own financial and personal situation.

Take our five-minute quiz to see if a Hometap Investment might be a good fit for accessing your equity without having to sell your home.

YOU SHOULD KNOW…