Are mortgages or lines of credit best for funding your real estate investments?
Mortgages are the traditional way to finance real estate investments. Lines of credit are often an attractive alternative. Which is right for fueling your business and portfolio?
Let’s take a look at how lines of credit and mortgages are different, their pros and cons, alternatives, and how and when to use them…
Mortgage Loans For Property Investors
Mortgage loans are secured loans collateralized by physical real estate.
As with any other type of debt or loan, offering some type of collateral and security gives lenders far more confidence and reduces their perceived risk level. This means you can often borrow a lot more. Though if you default on the debt the property can be foreclosed on by the lender.
Mortgages are generally seen as longer term financing. There are exceptions for rehabbers, flippers and builders. Though typically speaking this means lower payments over a longer period of time, and the availability of long term fixed interest rates.
Lines Of Credit For Property Investors
Lines of credit are often an attractive financial solution which can provide investors and business owners with great flexibility and speed. They may not be a stand alone substitute, but everyone should have one.
There are two main differences with lines of credit:
They are revolving credit lines (like a credit card)
They are often unsecured debt
One of the beauties of revolving credit lines is that you never pay more interest than you need to. If you use some of your line and carry a balance, you only pay interest on the portion of the line you are actively using.
It is almost like a supersized credit card limit. So, once established, this is emergency money or working capital you have access to all the time. So, instead of waiting on a BPO, appraisal, inspections and title work, and mortgage underwriting, you could theoretically use your line to pay cash for a property and negotiate a better discount. Then refinance it with longer term fixed rate financing later.
Your line of credit can also be used to make earnest money deposits on new deals, act as a bridge between dispositions and acquisitions, or provide working capital for renovations, repairs and making payroll. They can help absorb and cover unexpected emergency expenses and repair costs.
Both mortgage loans and lines of credit have their place and perks for real estate investors. Lines of credit can offer more agility and sustainability as well as competitive advantages. Mortgages may provide more capital and stability over the long term.
You typically don't have many lines of credit, but can supersize your financial power and portfolio by using unlimited mortgages. Together they can offer the best blend of strength, maneuverability and short and long term health.
SolveMyLoan.com offers both lines of credit for real estate investors, and a selection of investment property mortgages for flipping, repositioning,acquisitions, recapitalizing and stabilizing properties in your portfolio.
Check out how we can help today…