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5 Creative Ways Investors Finance Income Properties in Phoenix

Here’s How You Can Creatively Finance Income Properties in Phoenix

phoenix-income-property-investor-calculating-finances

Are you looking for a way to finance income properties in Phoenix? Whether it’s your first rental property or you’re working to build a portfolio, you might run into roadblocks when it comes to financing.

The good news is there are more ways to finance income properties than traditional financing. We’ll explore the ways to obtain financing and build the tenant base that you desire.

Get a Portfolio Loan

This is one of the first alternatives to consider next to a traditional home loan. Portfolio loans are essentially outside-the-box loans where the debt is not sold off to another lender.

Instead, the debt obtained is kept in-house with the lender. They use this as a piece of their portfolio. The loans are typically offered by smaller banks.

There are some pros and cons that come along with a portfolio loan.

Pros of Portfolio Loans

  • Looser qualifying standards in comparison to a traditional loan. This can make it easier for you to qualify since there are no other qualifying factors required by third-party lenders.
  • Close relationship with your new lender. If problems pop up, it can be faster and easier to get assistance.

Cons of Portfolio Loans

  • Potentially high interest rates. Since you are working with a smaller company, you might have to settle for higher interest rates. This is especially true if they have easier qualification standards.

If a portfolio loan doesn’t sound like the right financing option for your income properties in Phoenix, there is more to consider.

Have a Look at Hard Money Loans

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A hard money loan is a short-term loan option that can help you score your next income property. Some hard money loans don’t even require income or credit verification.

Just like portfolio loans, there are advantages and disadvantages to this type of income financing. You might only have a couple of months to pay back your loan in full. The interest rates can also be quite high to the tune of 15%.

However, the good news is that hard money loans can be quite quick to process and simple to get qualified. If you’re interested in buying properties at auction, a hard money loan can offer you financial assistance.

As long as you are confident you’ll have the cash to pay the loan quickly and in full, a hard money loan might be right for you.

Flip and Rent

rental-property-under-construction

Do you yearn for the life of a house flipper? Flipping homes to sell or rent can be an exciting endeavor. It can also be a reasonably fast way to put cash in your pocket.

The key here is to find properties that need fixing up. These can be both cosmetic and structural issues. If the issues are the latter, you’ll want to make sure you have a contractor to make repairs.

Otherwise, this is your chance to score a property at a potentially great value. Once you flip and rent the property, you can use the excess cash flow to quickly pay off any loan that you have. If it’s a hard money loan, you might have as long as 3 years to pay it off.

If you choose to go this route, be careful of the market and the going price for rentals. You’ll want to be realistic about your margins and how much income you will generate for financing.

Pay in Cash

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If you can swing it, paying for a rental property in cash has a list of benefits. It allows you to:

  • Forego the extra costs associated with interest rates.
  • Lower closing costs, as there are no lender fees to pay.
  • Speeds up the buying process as there is no waiting for bank approval.
  • No debt to manage.
  • Maximize profits for rent payments.

Paying in cash might feel like a high mountain to climb. How can you find the cash to finance income properties in Phoenix?

There are some creative ways to come up with a cash payment:

  • Tap into your IRA. If you have some money saved up for retirement, you can use some of the funds for cash and replenish later.
  • Ask to borrow the down payment. Do you have friends or family who support your business ventures? Your loved ones and close friends can help you come up with the cash, or at least a down payment for a loan.
  • Co-invest with a trusted friend. If you have someone who is also interested in income properties in Phoenix, consider bringing in a co-investor. They can help you come up with the funds to secure your rental property.

Tap into Your Home Equity

Are you already a homeowner? You can use this to your advantage by tapping into your home equity to help finance your next income property.

How does rental property financing work with home equity? There are several options to consider:

  • Home equity loan: This is where you use the equity of your own home as collateral. It comes as a sum of cash with a fixed interest rate. This is also a way that you can get funds to renovate a property.
  • Rental line of credit: If you already own income properties in Phoenix, you can take out an equity loan on those properties instead of on your own home.
  • Home equity lines of credit (HELOC): This type of funds source is similar to a credit card. You use the money as you need it. Banks allow you to access these funds in several ways including wire transfer, or even using a credit card connected to your account.

By using one of these three options with your home equity, you can be well on your way to financing income properties in Phoenix.

Taking the Next Steps

Getting the funds to finance your income property can certainly be a hurdle. However, there are other obstacles to consider once you finally got your funding in place.

As a landlord, you’ll need to consider exactly how you will manage tenants each month. This includes collecting monthly rent that you may need to finance more rental properties.

The good news is that Brewer & Stratton is ready to help you with property management services. We’re experienced property managers in Phoenix offering a free rental analysis and 3 months of property management for free!

Please contact us if we can assist you with your property management needs for income properties in Phoenix.

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Designated Broker: Christopher Goodman
Designated Broker:
Christopher Goodman