- Home Equity
You can use a home equity loan or line to pull cash from your current home to use as the downpayment on an investment property.
The interest rate on a home equity loan may even be lower than what you’ll pay for an investment property first mortgage. The disadvantage of going this route, of course, is that your primary home is collateral.
If you have assets like jewelry, art, cars, RVs or boats you can sell them raise a downpayment. If your rental property appreciates, you’ve traded a depreciating asset for an appreciating one.
- Personal Loan
You might be successful if you ask for a personal loan from a bank that knows your financial history and the property you want to buy. If you don’t have this kind of banking relationship, start one if you want to keep buying investment property. Consolidate your accounts at one institution and take out any small loans you need from it. Then, when you need larger sums, you’ll have a bank to turn to.
- The Seller
Borrowing from the seller is more common than you might think, especially when you’re buying an existing rental property. A seller moving into retirement might benefit from a secure monthly mortgage payment from you.
Interest on seller-funded loans tends to be high, but if the property is a good investment that generates income, a seller loan may be the answer.
- Life Insurance
If you have whole-life insurance (as opposed to term life insurance), you may have accumulated substantial cash value over the years that can be used as collateral. But remember that the death benefit is reduced by the loan amount and the effective interest rate might be what you’d pay on a home-equity loan or on a loan secured by stocks or mutual fund holdings.
- Family Members
You may not have a big enough downpayment to buy a rental property on your own, but maybe others in your family would like to join you. If you and your siblings have young children about the same age, you can buy a property with a 15-year mortgage and then sell it to fund the kids’ college tuition.
Before acting on any of these solutions, check with your financial adviser for guidance on the best course of action.