Real estate investment is one of the oldest forms of investing and remains one of the most popular because of how effective it is at helping entrepreneurs increase their wealth. However, investing in property doesn’t come without its risks and challenges.Â
The key to success is understanding investment real estate funding. Illinois has affordable prices, a robust rental market, and thriving economy. It also offers numerous options for investment funding.
Simplifying real estate investment in Illinois is easy with our in depth guide. We’ll walk you through everything you need to maximize your investment efforts and turn real estate into significant capital, diversify your portfolio, and set yourself up for success.Â
Get started with Midwest Business Funding by getting in touch with one of our specialists today at 317-606-3595. Or fill out our web form to learn more about Illinois investment real estate financing.Â
Understanding Investment Real Estate Funding
Before diving into the investment real estate funding tips for Illinois entrepreneurs, let’s first discuss what investment funding is.Â
Investment real estate lending is specifically designed for the purchase of property intended to generate income, whether that’s buying, renovating, and then reselling for more money or buying a property and using it to generate rental income.Â
Because rental properties are considered high-risk, investment real estate funding in Illinois often comes with more stringent approval requirements than conventional loans. Specifically, many lenders who offer financial solutions for property investment require a higher credit score, a low debt-to-income (DTI) ratio, and a higher down payment.Â
For this reason, investors can sometimes find it challenging to get approval for the right lending solution that meets their needs. This is where the tips below can help.Â
Investment Real Estate Funding Tips: How to Fund Real Estate in Illinois
If you are looking to invest in real estate in Illinois but don’t know where to start or are having trouble getting approval, consider the following tips and insights:
1. Develop a Clear Investment Strategy
Before doing anything, you should lay out a clear investment strategy. Knowing what properties you intend to invest in and your financial goals will help determine which lending solutions work best for you.Â
Do you want to buy, remodel, and sell a property, or buy, remodel, and rent? Are you going to live in the place you purchased while renovating it and then sell it or rent it out?Â
If you have another full-time job, how much money and time can you devote to buying, renovating, and managing properties? Will part of your expenses include hiring a property manager?Â
Or do you simply want to buy a property and hold it for a few years until the value increases and then sell it?Â
These are all questions to consider when developing an investment strategy and deciding which lending option will work best for your goals. Â
2. Understand the CostsÂ
As a secondary part of your investment plan, make sure you understand all costs involved in rental property investment.Â
You should consider:Â
- Improvement and renovation costs (plan to go over budget)
- Insurance costs to safeguard your property against unforeseen events
- Various property fees and taxes
- Property upkeep maintenance costs
- Various unexpected costs (i.e. water damage, mold, tax hikes, etc.)
3. Know Your Financing Options
There is a wide range of options when it comes to investment real estate funding in Illinois. Thoroughly research all available options to know which one(s) are best suited for your investment strategy and financial needs.Â
For example, some loan or funding options may have higher interest rates and require a higher credit score but have more flexible terms, whereas others might be better suited for lower credit scores and a poor income history but less flexible terms.Â
Some options to look into include:
- Real Estate Investment Trusts (REITs)
- Hard money loans
- Conventional loans
- Private money lenders
- Fix-and-Flip loans
- Home equity loans
- FHA loans
- Cash financing
- Portfolio loans
4. Minimize Risks
One of the reasons it’s difficult to get approval for investment real estate funding is because of the associated risks. To increase your chances of getting the funding you need, it helps to know the potential risks and do what you can ahead of time to minimize those risks.
One of the biggest risks is the slow uptake of rental units. If you are investing in property that you intend to rent out, maintain a cash reserve to make the monthly payments on the loan while waiting for the units to fill up.Â
Cash reserves not only help minimize risk in case of slow uptake but can also help cover other costs to help you stay afloat, such as repairs and maintenance. The same goes for properties you intend to flip. If you wait a long time for a top-dollar buyer, cash reserves can help cover your loan payments and any other expenses associated with maintaining the property.
5. Improve Your Credit Score
Before you start looking for a lender to finance your property investment, consider taking measures to raise your credit score. The higher your credit score, the more lenders will view you as a strong borrower, which can help you get more favorable terms.Â
In most cases, scores below 740 are likely to result in higher interest rates. Some tips for raising your credit include ensuring bills are paid on time, aiming for 30% credit utilization, keeping old accounts open to extend your credit history, and consolidating your debts. Â
6. Save for a Larger Down Payment
In addition to improving your credit score, making a larger down payment can also increase your approval odds and lead to better terms. Aim to pay at least 20% down to secure funding, and for 25% to 30% to get better interest rates and monthly payment amounts.Â
7. Maintain Detailed Financial Records
The more you can prove your worth, the more secure bankers will feel lending you money. Compile all records of your assets, such as physical assets, savings accounts, and other bank records to demonstrate financial stability and collateral that can be used to secure funding.Â
The more organized and detailed your records are, the more you can streamline and expedite the approval process.Â
8. Shop Around
While traditional banks have much to offer, they aren’t your only options. Take time to shop around to find the best terms that meet your needs. This can take time and effort, but it’s well worth it when you find a suitable match.Â
There are a plethora of modern financing solutions available today to help new and experienced investors with their investment property purchases. In addition to local banks and credit unions, you can also look into modern online lenders and alternative digital financing companies, credit card companies, private money lenders, and peer-to-peer lending. You can also look for an investment partner willing to share the costs and invest with you. Â
Easy Investment Real Estate Funding Solutions in Illinois
If you follow smart rules of investing and seek out tips and advice, you are likely to have more success on your investment real estate journey.Â
At Midwest Business Funding, we aim to simplify investment real estate funding for Illinois entrepreneurs. Our no-strings-attached, client-focused approach makes applying for funding a no-brainer. We are committed to helping entrepreneurs like yourself secure the financing they need to achieve their investment goals and catalyze their growth potential. Â
Let us help you discover your growth potential today! Contact us at 317-606-3595 or fill out our web form to learn more.