Funding Your Vero Beach Investment Property
Cash is still king when it comes to purchasing property, but financing a deal with today's low interest rates can increase your Return on Investment (ROI). Many of the investors we manage rental properties for initially purchased with cash and then did a cash out re-finance to buy additional properties. A Home Equity Line of Credit on your primary residence is an easy and low cost alternative to originating a loan based on rental income. If you have good credit and at least 20% down, many lenders will originate a non-owner occupied mortgage.
Cash - Financing a Vero Beach investment property with cash will provide several benefits:
- More leverage in negotiating better price and/or terms.
- Ability to purchase homes or condos that don't meet lenders requirements.
- Few holding costs during renovations or vacancies
Mortgage - Borrowers with good credit and income can find lenders who will finance a non-owner occupied property.
There are however several points to consider:
- Lower LTV - Loan to Value - Banks will typically want to see a minimum of 20% down
- Higher interest rate than owner occupied - but interest & all expenses are deductable
- Payments continue even when there is a pause in income from rental
Fund with Self Directed IRA or 401k - An increasingly popular method to fund a rental purchase is through a self directed IRA or 401k. Our business recently formed a Solo 401k which allows us to invest in many different asset classes including purchasing real estate. We have "Checkbook Control" over what we choose to invest in as long as the expenditure meets IRS guidelines. All income produced must return to the IRA or 401k account, but it is not taxed. You can even write yourself a personal loan from the account, but it must be no more than 50% of the account balance and you must pay reasonable interest to your retirement account.
Joint Venture - is an option to consider if you can provide funding, but not the time to find, repair and manage a Vero Beach Real Estate investment. We have provided the service side of many transactions for our investment buyers, since we have extensive construction background and also operate a property management company. If you have the time to find, repair and manage an investment, you can look for passive investors who have the funds but don't want the time expenditure.