Should I Borrow Money So I Can Make A Real Estate Investment?
June 19, 2020 (Investorideas.com Newswire) A common obstacle many people encounter when investing in real estate is finding the capital to make their first deal. It's fair to say that most people don't have vast sums of money in their accounts ready to invest. Also, to make matters more complicated, many are already making mortgage payments on their own home every month. This means they think no bank will lend them money to purchase another property.
Yet, it's a fact that it's possible to find the money to invest in real estate. With this in mind, should you consider borrowing money for this purpose? If so, how should you go about it? Here, we take a closer look at how much you can borrow and from which sources. This should give you a good idea of some of the possibilities you could harness.
Borrowing From Life Insurance Policies
If you have a whole life insurance policy it will have a cash-out value. However, you may not realize that it's also possible to borrow against that policy at a competitive rate. There's no need to even quality with a specific credit score. For most people, all you need to do is contact your insurer and let them know you want to borrow on your policy. You'll then be told the amount you could borrow as well as the terms. The money could then be in your account in around a week. So long as you're making your total loan payments as agreed, there'll be no negative impact on your policy.
Borrowing From A 401K
One other way of borrowing money so you can make a real estate investment is taking out a loan against your 401K. Plan participants are permitted by the IRS to take loans out based on how much is in their account. There's no need to qualify or apply for loans of this kind. Interest rates, repayment periods, and loan amounts will vary though, so you'll have to talk to your 401K custodian to find out all the details. Again, you'll need to ensure the repayments are made as agreed since the penalties are severe.
One option is to take out a HELOC. Otherwise known as a "home equity line of credit", a HELOC isn't a simple loan. Rather, draws are taken to suit your needs. Interest rates are adjustable, so a HELOC could involve you paying less or more interest when compared with other options. A HELOC could also extend from five to ten years to meet your requirements. A major benefit is that there's no need to pay interest on draws you haven't taken. If you don't know how much you're going to require for your investment in real estate in the long-term or you're flipping a property, a HELOC could be worth considering.
A Home Equity Loan
Another option is a straight home equity loan against the equity that is in your property. As this loan type is secured against your property there's no need for a qualifying credit score. This loan type gives you a lump sum of money that you can use for any purpose including investing in real estate. The payments will be fixed and the interest rate will be fixed too. The repayment term may be as long as thirty years and, typically, the interest rates are attractive. However, you'll need to make the payments on time to keep ownership of the property.
Investing In Real Estate Is Possible Without Hard Cash
You can clearly see that there are several ways of borrowing money to invest in real estate. Lacking cash isn't an impediment when it comes to starting a portfolio of real estate investments. If you're resourceful, it's possible to find sources from which to borrow money and for many people, it's well worth it. The potential gains from real estate investments have been well-proven, with significant benefits when compared to bonds and stocks, so it's certainly worth considering if you're ready to begin enjoying the benefits of being an investor.
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