As you consider investing in the Houston real estate market, you will face the question of financing for your investment. Investor friendly real estate agents report that the investment property market in Houston is strong, and you can make a significant profit investing in real estate in Houston, but first you have to have the money to purchase the property. While the National Association of Realtors indicates that 75 percent of investors pay cash, if you can’t, there are options for financing available.
FHA Loans
When it comes to real estate investing, Houston buyers can always opt for the FHA loan. These loans require just 3.5 percent down, which makes them popular with real estate investors who lack a huge chunk of change to put down on the property. However, they do require that the investor lives in one of the units. The limits in Harris County for multi-family properties are:
- Duplex – $348,900
- Triplex – $421,750
- Four-plex – $524,150
Investment properties often require repairs, and the FHA has a solution for this as well. With the 203(k) loan, you can borrow for the purchase as well as the repairs. As long as you will occupy a unit in the home, you can apply for this type of loan. All FHA loans are delivered through FHA approved mortgage lenders.
Conventional Loan
If you are going to invest in Houston real estate with a conventional mortgage, you will need at least 20 percent for the down payment. If you can save 25 percent, your interest rate will be much more favorable. If you absolutely cannot come up with the 20 percent, consider working with a local bank, which may offer more flexibility. These Neighborhood banks have in house underwriting and are willing to consider projects others turn down because they improve the area.
Hard Money Loans
If you can’t come up with a down payment, you may want to consider using a hard money loan in your favor. Yes, these loans are costly and have higher interest rates, but if you can’t get a conventional loan for your investment, they may give you the initial money to make the purchase.
Here’s how you can use hard money loans for investments. First, find a home with a price that is around 60 percent of its potential value after repairs. Then, secure a loan from a private investor for the purchase of the home. Next, put about 10 percent of that after-repair value in to the property to fix it up. After a period of about four months, refinance the house for 80 percent of its appraised, after-repair value. You’ve now succeeded in buying the home without the necessary 20 percent down, and you now have a conventional loan.
Owner Financing
If you have some money to put down on the property, but banks aren’t interested in offering you a loan, consider contacting the seller. The owner may be willing to enter into a short-term agreement with you wherein you pay him for the purchase of the property while you work to secure the necessary financing. This benefits the owner because it’s a low-risk way to make some income on the property, and you can begin using the property as you are paying for it a little at a time.
Inner loop Houston Realtor Bill Edge recently handled the sale of a commercial building in Houston for $750,000 using owner financing. The buyer had $150,000 cash but could not get a financial institution to commit to a loan. The seller was agreeable to doing owner financing for 3 years while the buyer found a loan. The owner got two points higher than the investment loan rate at the time. The seller won by getting a good return on their investment with little or no risk. The buyer won by not having to resort to a hard money loan or a bridge loan while they put together their financing.
Financing is available for investment properties in Houston, but you might have to get a little creative. If you are ready to start shopping for properties or need more direction for your potential financing options, contact Bill Edge at 713-240-2949 to discuss your options. Houston real estate investors regularly turn to him for his expertise, and he is ready to help you find the right property at the right price.