You are 10 years out from retirement and wonder what you’re going to do with yourself when the time arrives. You have decided you want to begin investing in property. Real estate investments could make your retirement more comfortable while simultaneously giving you something to manage once you stop working. Great. How are you going to acquire that first property?
The question here is one of finances. Unless you are independently wealthy – in which case retirement probably doesn’t pertain to you anyway – the chances of you having enough money lying around are pretty slim. You will need to finance the purchase. You do have options though.
There are many considerations in the search for a lender who can help you obtain that first property. At the top of the list is the type of property you are hoping to obtain. If you’re looking at a single-family home you plan to rent, your highest chances of success lie with traditional residential mortgages.
Even though residential rental properties are considered commercial properties for all intents and purposes, it’s nearly impossible to obtain a commercial loan to acquire a rental home. Small business loans are out of the question, too. That really leaves you with residential mortgages and a few other options.
Hard Money Loan
Obtaining commercial property opens the door to a form of lending known as hard money lending. Hard money is loaned by private lenders who treat their businesses more like an investment. Also note that hard money loans are easier to come by because they are asset-based.
Actium Partners is a Salt Lake City hard money lender active in Utah, Idaho, and Colorado. The core of their business is funding commercial real estate investments. They don’t do fix-and-flip or construction loans, but hard money and bridge loans for obtaining properties are both on the table.
Your Retirement Plan
Though it seems drastic, you might be able to cash in your retirement plan and use the money to obtain your first property. The bad news is that doing so before you reach legal retirement age subjects a retirement plan to heavy taxation. You will lose a bundle by cashing out early.
On the plus side, obtain the right piece of property and it could return far more income in retirement than your 401(k) or pension would have otherwise offered. The only way to know for sure is to sit down and do the math.
Second Mortgage or Home Equity
It’s not unusual for new property investors to tap into a home equity line of credit or a second mortgage to finance the purchase of a residential property. Because residential properties are comparatively cheaper, combining multiple lines of credit can sometimes be enough to get a portfolio started.
Funding a real estate investment by way of a second mortgage or a home equity credit line comes with inherent risk. For example, defaulting on either one could put your primary residence at risk. Imagine being a landlord without a home of your own; a landlord who lost their own property because they relied on a second mortgage and home equity line of credit to support their investment.
There are still more ways to raise funding for that first purchase. They include options like crowdfunding and peer-to-peer lending. Needless to say, bank loans are rarely the only game in town.
Real estate makes for a fine investment capable of carrying you through retirement. But obtaining that first property involves taking on some sort of debt. Just know that however you finance the purchase will affect your overall risk exposure and profitability.