Deciding to invest on property is easy. But financing is a different story.

Whether you’re buying a small piece of farmland or a fully furnished building, you’re going to spend a significant amount of money.

So how do you go about financing your very first investment property? Check out the following expert tips and suggestions:

1. Make a Sizeable Down Payment

When financing an investment property, your goal should be to reduce the amount you owe.

Otherwise, you might end up paying too much on accrued interests.

Loan experts recommend a 20 percent down payment to lower down the interest rate. You will also be paying less interest in the long run.

Even more, you could potentially buy the property in half the time!

2. Get a Loan from a Bank

According to market research, it’s really advantageous to invest on real estate properties these days as banks become more comfortable lending money to first-time buyers.

However, you should know that most banks would have strict qualification policies before they approve personal loans.

If you have a good credit history, your chances of securing a bank loan is very high.

3. Apply for an FHA Loan

The Federal Housing Administration (FHA) is a popular financing option because it allows you to buy a home with a relatively small down payment.

Generally, FHA loans are not applicable to investment properties because the agency requires borrowers to reside in the property purchased.

But if you are buying a multifamily property or a duplex, you can make it eligible for an FHA loan by residing in one unit and then renting out the rest.  

4. Consider Private Lenders

If you don’t qualify for traditional bank loans, your next resort would be to secure cash advance from private lenders.

Unlike banks, they have more flexible terms and conditions, and can accommodate various types of property buyers – whether first-time or experienced, and whether they have good or bad credit scores.

5. Ask about Seller Financing

This is another option when you can’t get a loan from a bank or other traditional lending sources.

In this case, the seller (who is essentially the owner of the property), becomes the lender.  You can already use the property to generate income but you have to pay a monthly mortgage to the previous owner.

However, in case of default, the owner has the right to take back the property. Some sellers are willing to go by this means as long as the investor is able to secure their confidence.

6. Buy to Rent: The Asset-Based Mortgage

Asset-based loans are loans that are secured by an asset. Here, the lender uses your asset accounts to qualify you to a loan.

This means that if you are unable to pay your debt, the lender has the right to take your asset, which can be in a form of equipment, machinery, stocks, bonds, mutual funds, another property, etc.

This type of financing option is suitable for those who have a significant amount of assets but do not have a steady income.

7. Gather a Group of Investors

When you can’t pull up enough funds to finance an investment property, you can look for people who have the resources to do so.

Of course, you have to make sure that they see the potential gain in their investment and how they are going to achieve it. Create a comprehensive business proposal and you might just get more than enough number of investors.

Investing in income properties can be very rewarding. But it goes not without challenges too.

As a first-time buyer, your greatest challenge will be how to finance the property. Well, the good news is that you need not pour all your savings to it.

But remember it’s pretty helpful to make a sizeable down payment to lower the interest rate.

Securing financing from banks, private lenders, the FHA, and even the seller, as well as going with asset-based mortgages and gathering a group of investors are some of the best options available for first-time buyers like you.

About the Author

Lidia Staron has been working as a writer, editor and literary coach for 5 years.

She contributes articles about the role of finance in the strategic-planning and decision-making process.