Are you interested in investing in Southern California real state? Doing so can provide you with a substantial extra income. If you are not ready to buy a property in cash, you will likely want to know how to finance a rental property in Southern California. In our latest post, we will explain just that!
For many successful real estate investors, the first step is to make sure their finances and credit are in order. Not everyone can just go out and pay cash for a rental property they are interested in. For many investors, financing their first few properties is what will enable them to get their foot in the door. Keep reading to learn more about our tips to finance a rental property in Southern California.
Check Your Credit
Make sure you know your credit score and have taken steps to improve it if necessary. People with a score under 740 will see higher interest rates when taking out a loan.
Small, local banks, credit unions, and lenders can sometimes help more than a big bank can. They will have a bit more flexibility and may look at you and your background than a large corporate lender would. They will also have more interest in investing in the local community.
FHA Loan – Owner Occupied
A great way to buy your first rental property is to purchase a property using an FHA loan. These loans are for properties with 1-4 units and require a much smaller down payment than a conventional loan would. By utilizing an FHA loan to purchase a multi-family property, you will be able to use the income you receive from the other units to pay off the mortgage on the property, you will likely be able to live for free as well.
A conventional loan can help you get the cash you need but will require a much larger down payment. You will likely be putting at least 20% down, so save up accordingly.
There are other types of loans investors can use to finance a rental property. Some of these include a short-term loan, a portfolio loan, a conforming loan, or a Balance Sheet loan. Each will have different rates and repayment plans.
Financing Through A Self-Directed IRA
When your money is invested in a self-directed IRA, you will have the ability to invest in things other than stocks and mutual funds. If real estate is approved, you can use funds from your IRA to finance your rental property in Southern California. Of course, you will want to talk to your CPA first to make sure it is a smart financial decision.
Other Points To Consider…
When buying real estate, there is more to consider than just the price you are paying for the house. If using an agent, you might have their fees to cover. You may also be faced with a percentage of the closing costs. Most loans will require an inspection and appraisal, along with the payment of the loan origination fees.
Buying with tenants in place will help you immediately generate income from the property. You won’t have to deal with screening tenants, managing leases, or collecting security deposits right away. You will be able to avoid immediate rehab and repair costs as the property is probably in pretty good shape with tenants being there. It can help ease you into the routine of being a landlord, without having everything thrown at you at once. Of course, you will want to make sure the tenants in place have been properly screened, and have a good history of paying their rent on time.