When you want to purchase a Lee’s Summit investment property, one of the first decisions you’ll have to make is how you’re going to pay for it.
There are a variety of ways to buy investment property. If you’re paying in cash, it’s a fairly simple transaction which sets you up for some pretty impressive cash flow right from the start. But, most investors aren’t paying in cash. You’ll likely need a loan from a bank or other financial institution.
There are also 1031 exchanges which can help you buy real estate and defer taxes. If you already own a rental property and you’d rather buy something else, you can sell what you have and buy another property or a collection of properties while avoiding capital gains taxes.
You can also think outside of the box and consider options like hard money lenders and owner financing scenarios. It really depends on your own comfort with risk, your current financial situation, and what your ultimate investment goals are.
Mortgages and Lenders: Finding the Right Investment Property Loan
When you take out a traditional or conventional mortgage from a bank, you’ll need to have at least 20 percent to put down and you’ll also need your financial ducks in a row. Lenders will look at your credit and your assets and liabilities before deciding how much of a risk they’re willing to take by lending money to you.
You’ll also have to be aware of the limit on the number of loans you can take. If you’re hoping to buy 25 rental properties and you want 25 different loans – that’s going to be impossible. Fannie Mae currently caps the number of mortgages you can hold at 10. It’s going to be difficult to find a lender who is willing to provide 10 loans.
Having a relationship in place already with a banker, lender, or even a mortgage broker can work in your favor. Your local bank that you’ve done business with for over a decade, for example, might be willing to accept a smaller down payment or offer better terms.
Hard Money Loans and Seller Financing
When you don’t want to produce a large sum of cash at the beginning of the real estate deal, you might want to consider a hard money loan or seller financing.
With a hard money loan, the amount you borrow is based on the property value instead of your credit or financial history. It’s a short term lending tool that allows you to finance your property with the help of a private lender, and not a financial institution. These loans are usually more expensive and there’s a lot less time for you to repay them
With seller-financing, you can work with the seller to write your own terms. This is a great solution if you can’t qualify for a traditional loan. It also allows you to acquire more properties than a bank would be willing to finance.
Buying Lee’s Summit Investment Homes with a 1031 Exchange
There’s a requirement that you exchange with a like property or properties. This doesn’t mean you have to sell one condo unit and buy another condo unit. The new property you choose simply has to be an income-producing investment just like the one you’re selling. The new property must also have a value that is the same or higher than the original property. If you walk away from the exchange with any profit, you’ll be liable for the tax.
You’ll need to identify a replacement property within 45 days of selling your original property. Then, you have 180 days to close on the new sale. The entire exchange must take place within the 180 days (meaning you don’t have 45 days plus 180 days – the clock does not reset).
Since its founding in 2011,
Midwest Property Resources has been innovating property management and leasing in eastern Jackson County, northern Cass County, Missouri as well as Johnson County, KS, serving the communities of Lee’s Summit, Blue Springs, Greenwood, Raymore, Independence, Overland Park, and others that surround them.
We get to know our clients and their investment goals. We work with cash buyers, investors who prefer private lenders, and traditional homebuyers looking for a conventional loan. If you’re looking to increase your investment portfolio or buy rental real estate for the first time,
contact us at Midwest Property Resources.
