How to Finance Investment Property in a Buyers Market

Real properties remain great investments in Australia, especially in the current buyers market. As an investment strategy, real property presents various advantages over other types of investments such as stocks, bonds and bank deposits. However, raising enough cash for purchasing investment property can be a challenge for beginner investors. Ideally, a financial planner or mortgage broker should be able to help a prospective buyer learn how to finance investment property.

Benefits of investing in property

Financial freedom: The right property investment coupled with the best financing arrangements can generate huge profits for an investor. These can be used to finance other investment properties that generate similar incomes sufficient to sustain the desired lifestyle of an investor.

Passive income: Property situated in populated areas such as major cities and tourist destinations can generate regular passive income in the form of rent or lease payments.

Capital growth potential: The value of property is historically known to increase much faster than the economy’s inflation rate. Properties in prime locations are known to appreciate in value at the minimum rate of 7% annually. An investor stands to earn higher profits from selling property held for a long period.

Control over value: Unlike other types of investment such as shares of stock, bonds and deposit accounts where an investor has very little control over their future values, property investment may be improved, renovated, subdivided, developed or consolidated to improve its market value.

How to finance investment property

Potential gains from an investment property depend on the features of its financing arrangement. Not all investment properties are purchased in cash. Investors generally put up a down payment and finance the remainder value using a loan or mortgage.

Mortgage loan: A mortgage is a loan where property, usually the property being purchased, is given as security for the loan’s repayment. Interest costs for a mortgage loan are generally lower because the collateral lowers the lender’s risk.

Home equity as deposit: Producing a down payment for a property investment can be a challenge for investors with limited cash. An option would be to use a property’s equity as deposit. Equity refers to the value of an asset that is not subject to any lender’s interest. In practical terms, it is the difference between the current value of a property and the amount due on a mortgage loan secured by it.

Lending companies provide different loan products with varying features such as interest rates and repayment schedules. Each financing arrangement has its own pros and cons. Aside from teaching you how to finance investment property, a mortgage broker or financial counselor can help you determine the best arrangement for your situation.

Car Wash Loans – Show Me Some Money

In today’s financing environment, money talks now more than ever. If you’re looking to buy or build anything, if you don’t have it, you probably won’t get a loan. Years ago, you used to be able to get high Loan To Value (LTV) loans with minimal down payments, which often was borrowed from the FRP Express (Friends, Relatives and People that Love You) or from home equity loans and other sources. While this is not illegal by any means, underwriters want to see your OWN sweat equity and not someone else’s. You might think “My home equity IS my own sweat equity!” This is true, however, that is also a loan and is has to be paid back. This ends up being looked at as a Combined Loan To Value (CLTV) and not just what the bank is lending.

The sources for your down payment really have not changed that much. The first place that people look for down payment for buying or building a car wash is personal savings accounts and liquid investments. This is a logical place to start. Frequently people would use their line of credit from a home equity loan but while this is still an option, you still will have to show the majority of money coming from non-borrowed assets.

Many people will take money out of their retirement account. You will need to consult with your account regarding any possible tax implications from doing so.

People also often offer additional collateral if a residence or investment property has significant equity in the form of a second. It is highly possible that if your property is under-collateralized, the bank or lender will look for additional collateral.

From a collateral point of view, lenders will normally take an appraisal, discount the real estate and building by 20%, the equipment by 50% and good will usually has little to no value from a collateral point of view. So your $2,000,000 car wash might be viewed worth $1,500,000 from a collateral point of view, after a lender has discounted the appraisal. If you’re bringing in 20% equity ($400,000) they will view the site as UNDER-collateralized and will look for more collateral. I’m sure it makes your eyes wide open, but that is how the system works. Be prepared for it

While it is true that certain types of financing instruments offer higher Loan To Value (LTV) financing, they still will look to see if there is enough collateral. For instance, with a SBA 504 loan, occasionally you will see a 90% advance. In most cases, if you are getting 90% financing, the site itself will not be sufficient collateral and a lender will look for additional collateral. This is what they don’t tell you. If you are doing conventional financing, you normally will bring in 30% down plus pay closing costs. You normally can not borrow money for working capital or inventory. With conventional financing, you normally will not have the issue of having insufficient collateral like you will with SBA financing. If you’re getting anywhere between 75-90% financing with an SBA loan, especially if you are financing closing costs, working capital and inventory, it’s almost certain you will have insufficient collateral and the lender will be looking for more.

This does not make conventional financing a better option because if you’re looking at Cost Of Funds (COF) and Return On Investment (ROI) the higher advance will almost always outperform the lower.

If you have insufficient on equity, it might be necessary to find a partner with more equity. If this partner does not with to have involvement in the day to day operations of the car wash, after a period of time, you should be able to buy them out from the profits of the facility.

Regardless of what the source of your equity is, be prepared to prove it right up front to lenders and have backup options if you are told that you need to have more equity into the transaction.

Used Car Financing For Any Credit Score

The first thing that comes to mind is how can there be such a thing as any credit used car financing. The answer is that there is a huge demand and need for automobiles and if you cut out all the buyers that have less than perfect credit you would greatly reduce the consumption of vehicles and hamper the growth of the economy. So in order to fill that need there is a little known part of the auto retailing business that sells and finances vehicles for buyers that have credit that most lenders would turn away.

The dealers that offer any credit used car financing are usually called Buy Here Pay Here (BHPH) dealers or car lots. The buy here pay here terminology is no secret, in fact it is quite simple. You buy at the dealer and you make your payments at the same dealer. In short the dealership or car lot is not only the retailer of a used vehicle, buy they also act as the bank or lender. These establishments only offer used or pre-owned vehicles for sale rather new ones as a way of reducing their risk.

Car Financing Options for Any Credit Status

You may have noticed advertising that says bad credit or every credit qualifies for financing at certain dealers which is actually in house financing offered at buy here pay here car dealerships. These are the dealers that have any credit used car finance options. They are not bound by the underwriting or regulations that most auto lenders use to determine if a borrower is a good risk or not. They decide right there in the showroom in they are going to approve for an auto loan. The methods they use to decide if they will finance your choice of vehicle is based on income, time on your job, and length of time at your address. One of their favorites sayings are “If you have a job you are approved”.

This rather unconventional method of providing financing for used cars has been growing steadily for a number of reasons, from the economy to a higher rate of bankruptcies being filed. The main thing is that people that have terrible credit can still get a vehicle. If these people were unable to get a dependable vehicle they would have a problems keeping and finding a job, providing for their family and taking care of the everyday business of life. So there really is a need for any credit vehicle financing.

Somewhere between having great credit and extremely bad credit there are people that have credit that may not qualify for the conventional auto loan from an auto maker’s lending unit, but they can qualify with what is called sub-prime lenders. These lenders specialize in providing auto loans for the person with marginal credit that needs to buy a car. They use the buyer’s credit score to determine eligibility along with income and length of employment. However they also have certain stipulations for the auto loans they approve. These stipulations can limit the dollar amount of the loan, the term on the installment contract, the age and mileage of the vehicle and the amount of down payment that the buyer must have before the final approval is made.

These sub-prime lenders don’t have used car financing for bad credit, but they charge less interest on their loans than the buy here pay here car dealership does or at least in most cases. As you can see there really is a solution for any credit used car financing the only difference is where or with whom the transaction is made.