Planning on investing in real estate? Here’s how to buy rental property with a low down payment…
Many people are interested in the prosperous opportunities of owning a rental property, but they are unsure of how to finance these interests. Rental properties are challenging to acquire for new real estate investors as they require money to purchase and real estate is capital-intensive, but they have strong returns and pose a low risk. There are different reasons one might want to purchase a rental property including using the income to pay off their first mortgage or building up equity for retirement.
Just because you may not have enough money in the bank to put down 20% on a new property, don’t discount your ability to purchase a rental property.
There are many ways to finance an investment property. Here are three good ways to buy a rental property with a low down payment:
Private Loan
Private loans are loans between a private institution or individual and you. You can negotiate the terms of a private loan to fit your own personal needs and will be required to pay the loan back according to the agreed upon interest rate. In a private loan, it’s quite common to negotiate no payments or very low payments for a short period of time in the beginning of the loan. Because the terms of a private loan are negotiated between two parties, there’s opportunity to use a private loan to finance the purchase of a rental property with a low down payment.
Owner-Occupancy Loan
Owner-occupancy loans are a fairly easy way to achieve purchasing a rental property with a low down payment. The credit requirements for owner-occupied loans are far less strict than that of non-owner occupied loans. Any owner-occupied loan will require that you live in a portion of the residence with your tenants for the first year of owning the home. Often with this type of loan you can get approval with quite a lower down payment than 20%. Owner-occupancy loans also often have lower interest rates. After the first year following your purchase, you can then convert the residence to a full rental property and you do not need to occupy the home yourself.
Home Equity Line of Credit
A Home Equity Line of Credit or HELOC is a great way to borrow against the equity you have on your current home which is the difference between the market value of your home and any debts you carry on the home. This line of credit will be secured against a property you already own and is ideal for those who have substantial equity in their primary residence. HELOC is a revolving line of credit that you can withdraw from as you need and you will only pay interest on the amount you borrow. Because you use your current property as collateral, it is fairly easy to find a lender to provide you with a HELOC and it is a good option because the payments are low.
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If you are seeking advice on buying a home, more information, or if you have more questions for us, we are happy to provide you with helpful guidance and support. Email us at info@buyandsellottawa.ca or call us at 613-590-3036.