How to Finance Your Real Estate Investment

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How you finance your next real estate transaction will depend on how much cash you have

available, your credit capability, and your long term goals.

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If you have cash for the necessary down payment and closing costs then you can use traditional financing methods (mortgage). If not, then you have to be more creative.

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Your credit capability is based on your

credit score and your

financing ratios

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Your credit score mostly looks at:

1. how much credit you have2. how long you have had the credit3. how good you are at making payments

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A minimum allowable credit score varies but is usually around 600. An excellent credit score is 800

and up.

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Gross Debt Service Ratio (GDS)

Your GDS is calculated by comparing your monthly housing costs

(mortgages, taxes, insurance, heating) divided by how much income

(employment, rent, investments, etc.) you receive.

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Total Debt Service Ratio (TDS)

Your TDS is calculated by comparing all of our monthly debt

(housing costs, credit cards, loans) divided by how much income

(employment, rent, interest, etc.) you receive.

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3 Most Popular Ways to Finance Your

Real Estate Investment

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1. Conventional Financing

Requires a significant down payment by the investor. Most financial

institutions will provide financing of up to 80 percent of the purchase price of

an investment property.

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2. Seller FinancingThere are several forms of seller

financing, but one of the most popular ones is vendor take back (VTB). A VTB

is where the current owner (vendor) agrees to “loan” the purchaser a portion

of the purchase price.

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3. Joint Venture

Another common way for investors to purchase investment properties is by

entering into a joint venture partnership with another person.

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There are a lot more variations on these scenarios such as different seller

financing options, different ways to borrow the down payment, and various

other forms of financing

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Jim Pellerin has been investing in real estate for over 25 years. He is the

author of 7 Steps to Real Estate Riches

Check out his blog at jimpellerin.com