Wealth building often takes a cash investment that some people have trouble completing. The housing industry offers opportunities to men and women who want to earn revenue without spending a fortune to achieve it. Buying a property for use as a passive income source is a common way for investors to get into the market. This page and subsequent video brings to light popular investment property loans available to most investors.
3 Common Loan Types
Individual Loans Defined
An individual loan is one that is taken out by a borrower who plans to purchase a home. Someone who has a higher than national average credit score can often seek this pathway of financing. Some individual loan lenders require more than a high credit score. A review of the past three to five years of employment history along with a business plan are typically needed during the application and approval process.
Commercial Loans Defined
An LLC, partnership or a corporation can seek financing assistance through a lender that offers commercial loans. These institutions take the credit of the business into consideration as well as the individual scores of each owner. Buying a rental complex like a condo, apartment building or duplex can sometimes require a commercial loan. Strict requirements are often centered around these types of loans preventing some new investors from being approved for financing.
IRA Loans Defined
Lenders capable of providing alternative financing options can now make IRA loans to real estate buyers. Because the average person typically owns one or more retirement accounts, using IRA holdings to buy a home for sale now a good option for most investors. Banks usually require a larger down payment to fund a rental property and these funds must come from the IRA account that is used to obtain the loan. Taxation should be understood by investors who use retirements to start a real estate business.
Conversion of Retirement Accounts to Buy Property
Someone who takes the IRA account approach to buy an investment home has multiple options. A traditional or Roth account can be created once a qualified account is rolled over to fund the newly formed account. A self-directed account is the most widely accepted type that is used in the housing industry. A custodian can be selected to help plan the investments for the fund.
This method also works well for self-employed men and women who do not regularly contribute to employer-matched accounts. Learning how to invest in this method gives new investors an advantage over a person who relies solely on cash or market funds in order to make a property purchase. The passive income wealth building opportunities in the real estate industry continue to drive more people to using non-traditional financing methods.