Do you need real estate financing for your next deal? Maybe you are just starting or need to boost your real estate portfolio. Investing in real estate has a high barrier of entry compared to other forms of investments.

Whether a beginner or an experienced realtor, you may need real estate financing options to jumpstart your portfolio. 

Ideally, a typical real estate transaction involves an aspiring homebuyer applying for a home-buying mortgage after finding a property they love. Upon approval, the property buyer proceeds to close on the house. 

Unfortunately, this process may not be ideal for real estate agents. You may need to find the best real estate financing for agents.

If that’s the case, you may ask which is the best real estate funding for realtors. 

This article examines some of the best financing techniques for real estate investors. Keep reading to find the best real estate financing method to help you get closer to your next investment deal. 

Seller Financing 

Seller financing is a creative real estate agreement where the seller agrees to let the homebuyer pay the purchase price over time in installments.

Ideally, the seller does not give the homebuyer any money as a bank would. Instead, the seller receives a promissory note and mortgage as security.

This creative real estate financing option involves the buyer and the seller. There won’t be any loan committees, underwriters, or conforming rules.

Typically, the buyer makes an offer to the seller, they negotiate, and if the terms make sense for both parties, they move forward.

For new realtors, the seller financing option is an incredible tool worth the effort. In this deal, the seller receives monthly checks and the buyer does not have to place a huge downpayment.

Advantages of Seller Financing

•  Seller financing can be a valuable tool in a tight credit market.
• Realtors benefit from less stringent qualifying and down payment requirements.
• Seller financing options may mean more flexible interest rates and better loan terms.

Disadvantages of Seller Financing

• Buyers still need to demonstrate the ability to pay back the loan
• In the long term, the higher seller-offered interest cancels out any savings from avoiding closing costs
• Any mortgage held on the property introduces extra complications

The seller financing option may be the easiest approach where traditional financing is unavailable. Before signing any agreement, both parties should hire a professional to guide and draw up the promissory note. 

Investment Property Mortgage 

We all know about mortgages when it comes to financing a property. However, a common misconception is that mortgages can only be used to purchase a personal residence. 

The reality is you can get a mortgage to finance your investment properties. Most investment property mortgages require a down payment with a qualifying credit score for the lenders to approve your application. 

Apart from the down payment and the qualifying credit score, you also must have a carefully thought-out plan for the property. 

Investment mortgage lenders may also need to check your current debt and require an assurance that your finances are robust enough to handle the investment mortgage. 

You may want to coordinate with a mortgage originator to take you through the qualification process. 

Advantages of Borrowing a Mortgage To Finance Real Estate Investments

• Longer-Term mortgages, which can be more affordable in the long-term
• Cost-effective borrowing as interest rates are generally lower than for other types of borrowing
• A long-term mortgage is easier to pay

Disadvantages of Borrowing a Mortgage To Finance Real Estate Investments

• A mortgage will result in years of being in debt
• You could lose the investment if you do not pay the mortgage in full
• The property value may decrease as the market fluctuates. 

Different mortgage lenders offer additional terms and regulations to borrowers. If you are considering a mortgage to finance your investment property, find a mortgage lender that suits you. 

Financing a Real Estate Investment With A Portfolio Loan.

A portfolio loan is a mortgage that a lender issues and keeps within their range of investment holdings instead of selling to another company. 

The portfolio lender originates and supports the portfolio loan in-house, hence setting more flexible terms in favor of the borrower. 

Therefore, portfolio loan lenders offer specialized loan packages with additional income, debt, and credit requirements compared to traditional mortgage lenders. This is possible because they do not sell the mortgages to larger institutions. 

It’s important to note that the portfolio lenders tend to be local financial institutions loaning their own money, so they do not meet Fannie Mae’s lending guidelines. 

However, portfolio lenders do not offer the same longer-term loans as traditional residential mortgage lenders. 

Advantages of Portfolio Loans

• Less strict credit requirements as they accept borrowers with poor credit
• Accessible to real estate investors or self-employed people with variable income
• Potential for qualifying for a bigger loan with less money down compared to the conventional loan

Disadvantages of Portfolio Loans

• Portfolio lenders charge higher interest rates to compensate for increased risk.
• There might be prepayment penalties and origination fee
• It can be challenging to find since not all lenders offer portfolio loans

If you are interested in a portfolio loan, you have to search out mortgage lenders that provide them. Once you have identified a portfolio loan lender, find out their application process and requirements. 

Partnerships

Another creative real estate financing option for realtors is a partnership. A partnership can be the best option if a real estate investment is too difficult to go through alone. You can team up with another investor, pool funds together, and purchase a property you otherwise could not afford. 

Alternatively, if you do not qualify for a real estate investment as individuals, you may apply together. 

If a partnership is a good option for you, ensure you are teaming up with someone you know and trust, it’s a good idea to find someone with previous experience investing in real estate. 

Advantages of Partnerships In Real Estate Investments

• Real estate investment through partnership opens up more connections to helpful resources that will help you save time and money. 
• Real estate partnerships could result in more financial resources. 
• More opportunities to structure the cash flow from your rentals
• Each partner brings a different strength; hence you enjoy the diverse experience

Disadvantages of Partnerships In Real Estate Investments

• You have to split the profits
• Partnerships often involve differing opinions
• Sometimes partners may complain of unequal involvement

Look at the pros and cons of partnerships to determine if you want to finance a real estate investment.

Private Money Loan To Finance Real Estate Investment

A private money loan is a short-term loan used for purchasing or refinancing real estate. 

Primarily used for real estate investment and acquisitions, private money loans are an excellent option for realtors looking to expand their portfolios. 

Ideally, a private loan is provided by a private lender instead of traditional financial institutions like banks or credit unions. Unlike the conventional players, private money lenders have fewer regulations, making financing more accessible and straightforward. 

Therefore, a private money loan is helpful if you need the equity to finance a real estate investment opportunity. 

Besides, they are a great alternative to traditional property loans, as conventional loans take time and have different regulations. 

Advantages of Private Money Loans

• They are a good option for new real estate investors 
• They are an asset-based lending option as the lenders place most weight on the property
• With a private money lender, you can leverage your cash to purchase properties 
• No prepayment penalty and so you will pay back the loan without penalty
• Limited credit score and income standards since the lenders consider assets when qualifying borrowers. 

Disadvantages of Private Money Loans

• It may require a large downpayment depending on your experience and the profitability of the investment.
• Private money lenders only make loans on investment properties
• Private money lenders can grant loan extensions, but borrowers must pay extension fees. 

 You must find private investors or lenders to apply for a private loan.  

Self-Directed IRA Accounts

A self-directed individual retirement account is a type of account that can hold various alternative investments prohibited from regular IRAs. 

A self-directed IRA is best for savvy investors who already understand real estate investments and want to diversify in a tax-advantaged account. 

Owners of self-directed IRA accounts enjoy the unique benefit of purchasing and selling properties and still being able to defer taxes. 

However, under 60 investors who choose this real estate financing option are subject to a penalty for withdrawing the funds early. 

Advantages of Investing in Real Estate with A Self-Directed IRA Account

• You can invest SD-IRA funds in various alternative assets, including commercial real estate.
• The investment is held in a tax-advantaged account to grow tax-free or tax-deferred earnings.
• SD-IRAs are easy to open and offer different custodian options to the investor. 
• Funds from an existing retirement account can be transferred into an SD-IRA. 

Disadvantages of Investing in Real Estate with A Self-Directed IRA Account

• The tax benefits can be negated if funds are used in a prohibited transaction
• Fees charged for the administration of SD-IRA can be expensive
• If funds are withdrawn before the retirement age, they are taxed

Using a self-directed IRA as a commercial real estate investment vehicle can provide lucrative tax-deferred returns. 

However, you should perform due diligence to ensure the transaction fits well. 

Conclusion 

Creative real estate financing is all about finding uncommon ways to secure funding for property investments or developments. Some real estate financing options for realtors include forming partnerships with like-minded investors, self-directed IRA accounts, or private lender loans. 

Before choosing the real estate financing option for your investment, perform due diligence and consider the possible pros and cons.