Real Estate Financing – How it Works

Real estate financing is the lending of money to someone interested in purchasing a piece of real estate. Instead of purchasing a property with cash the method of financing real estate is preferred by most because it leverages your investment and provides a greater rate of return.

Contrary to what many people believe, you do not need a lot of cash in order to profit from real estate. Truth is, you don’t even have to own the property in order to get profit. By taking advantage of the available real estate financing, a lot of real estate tycoons such as Donald Trump have made their way to the top. We all know that investing in real property is a big risk and by taking out real estate financing, you don’t have to put your money on the line. Real estate investment financing, needs proper planning as well as expert guidance from an advisor. Investment programs really prove to be very beneficial when implemented with accurate planning.

I know you’re probably asking, “How can I benefit more than the regular real estate investor if I engage in real estate financing?” Let’s consider the following scenario. If you purchase property for $100,000, you can probably expect its value to increase by 5% annually. If you rent the property in the right market you can expect to cash flow around 3% per annum. By using real estate financing, you can get as much as 100% worth of profit since real estate investors usually have properties financed up to 95% of its actual purchase price and through the interest rates. Bearing these figures in mind, let’s pretend that you are renting the property; you can get a profit of $3,000 yearly. Now let’s say you were able to get 95% real estate financing so your down payment will only have to be $5,000. For the first year that you’re renting out the property, you can earn $3,000 for an investment of only $5,000! After only your first year the value of your house is now $105,000 and with the profit from rent you almost nearly break-even on your investment, and you didn’t have to risk your whole savings! In order to become a real estate investor, one should indulge in a professional financing program, to make sure that a real estate investment is executed to perfection.

If you are a newbie at real estate, the best way to go is through real estate financing so you won’t have to use your own funds immediately. If you have $100,000 in your savings account and you chose to purchase the property above with that amount, then your profit will only come out after a long period of time. But say you found 20 such properties and you decided to rent them all out and you were fortunate to get 95% financing for each of them, you would now be leveraging your investment and drastically increasing your net worth!

Of course, when you are talking about real estate financing, you have to understand that it is affected by the interest rate. We all know that the real estate market is a dynamic one so you need to make sure that you do your research and have created a financial plan so you can include future rates with the costs. This way, you will see just how much you can earn or lose, whichever the case maybe.

In the real estate investment industry you have to be sure to stay on top of things, that being said our real estate financing newsletter will help you to do just that. We provide wonderful insight on this fascinating industry and will surely prove to be a vital tool in regards to your efforts to dominate this business. Investors should avail the services of a professional financing program if they really want to become a successful real estate investor.