Think your finances are tied up in your current home? That might not be the case, as a cross-collateral loan may be an option to pull cash out of your primary residence in order to purchase a rental property. Purchasing rental property provides opportunities to build wealth because it:
- Tends to appreciate in value over the long term. Existing homes increased in price by4% annually, on average, from 1968 to 2009.1
- Harnesses the power of debt leverage. In real estate, leverage is the money you borrow to finance an investment property in relation to its worth.
- Provides you with a source of monthly income. Additional income, of course, helps add to your wealth.
How to Buy Rental Property
The first option, and most common, is to take out a mortgage like the one for the home you live in. Another is to take out a home equity loan. Secured by the equity of your house, this secured line of credit enables you to invest in real estate with low interest rates. If you want to know how to buy a rental property with no money, this can be highly strategic, and you benefit from the positive cash flow from your tenants’ rent.
You can consider using home equity for a down payment on investment property or to help pay for closing costs, rehab costs, and other expenses.
What Is Cross-Collateralization?
If you’re buying rental property, you can use the collateral of one loan to secure another loan. This lets you work with the same lender who will use your car, for example, as collateral on a second loan. The downside is you may not be able to sell your car. It can be repossessed, as well, even if you default on another unsecured loan (like a credit card) or file for Chapter 7 bankruptcy.
Cross-collateral loans are often used in auto lending but are used for mortgages as well. Borrowers with multiple properties, such as home builders, may want to finance new projects. Lenders may secure the loan with a lien against one or more of the borrower’s properties.
If you are serious about investing in rental properties, could you avoid a lien or other penalty by your lender? Read on.
An Easy Way to Invest in Real Estate
You may have considered a cash-out refinance for your investment property. A cash-out refinance recalculates your home loan based on what you owe plus the amount you’d need for another property. However, a cash-out refinance for rental property isn’t your only option. You don’t have to use hard money, such as a bank loan, either.
A Business Purpose Loan from Equity Wave Lending can be used to purchase an investment property, provided the funds are used by your business. It can be used as a cash-out refinance as well. Since the collateralized property can be owner or non-owner occupied, such loans can be used as rental property loans or real estate investment loans.
This option is a good idea if you are a business owner investing in real estate and have been turned down by the bank. Financial institutions can be finicky when it comes to home loans or personal loans for bad credit. We provide an alternative funding source. If you’re looking for an affordable way to finance a rental property, submit a Quick Loan Inquiry or contact us today.
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