Smart ways to come up with a down payment for a rental

Cashfloat is a technology & data oriented lending company, developing and integrating technologies to enable affordable loans online under the new FCA regulations.

Here it looks at ways to come up with a down payment for a rental.

We had some rough years. With the current conditions on mortgage loans, not everyone can summon the courage to embark on such adventure. Have you found a deal on the market that is too good to ignore?

Let’s discuss today some smart ways to come up with a down payment for a rental!

First, be smart about the desired property.

We would all like to start with a rental in the shape of a five-bedroom house in a residential urban area. The price of such house and its down payment are most likely astronomic. Prices in real estate are high by default. But you can find sweet deals to build upon and turn into profitable investments.

As advice, if you have a poor credit history/score and you struggle with credit card debt, you should first cover those debts. It is wise to do so you spiral down in more loans, more interest rates, and more payments that are overdue.

Now, let’s see a some smart (albeit not risk-free) methods to present a down payment for a rental.

1. A Personal Loan

You can try a personal loan from a reputable lender and cover it from the rent you receive. Personal loans offer you significant amounts over long periods (think years) with bearable interest rates. Just make sure you receive approval for a sum large enough to cover the down payment or at least the majority of it.

If your rental deal is as good as it seems, it can cover your loan debts and even make a profit. Personal loans differ from payday loans. The latter will not offer you enough money to come up with a full down payment for a rental. What a payday loan can do is cover a small chunk you are missing to reach the down payment amount.

Keep in mind that payday loans are short-term credits with higher interest rates. They can work together if you strategise your credit portfolio correctly. You should read more about how these credit instruments work and make an informed decision.

2. An Auto Equity Loan

When it comes to conventional financing for a property down payments revolve around 15%-20% and up. You may have to save a small fortune to be able to put the down payment on the table. Especially if you are young and don’t have an investment portfolio yet.

In case you have a decent car make and model, you can take an auto equity loan. It can help you cover some down payment. Auto equity loans can bring as much as 50% (and sometimes more) as the value of your car.

In this scenario, the interest rates are high. The lender can repossess your car if you fail to reimburse the loan. On the other hand, you can add this easy money to your down payment piggy bank. Of course, you have to be aware that you need to make your loan reimbursements on time to take your car back. You should also present a clean credit history.

3. Seller Financing

It is a long shot, but you can try. Few people think about this because who has heard about a seller covering the buyer’s down payment? Well, it is rare but not impossible.

Here are some situations you should take advantage of:

The seller inherited the property, does not need it much, and does not know what to do with it either; the seller has no mortgage on the property; the property is in relatively poor shape and the seller does not have the cash to fix things; the seller may not want to go through all the motions.

They might accept a quick settlement with you and monthly payments from your part.

Some sellers won’t even want to hear about it. If you find one that does, it is worth discussing such matters and finding a mutually beneficial solution.

4. A Partnership

Yes, we know that doing business with friends and family inevitably leads to disasters, but it shouldn’t always be the case. Rentals on the real estate market are a surefire way to produce passive income and become substantial investments throughout the years. Some properties can make a profit in a year if managed correctly.

In other words, looking for an investor or a partner to your rental endeavour may be the smartest idea on this list. You may not have money for a down payment, but you could put in the hard work and the trouble of building a real estate portfolio. Your business partner may have the money, but no time or skills in this department. You don’t have to convince a friend or a family member. You need to find people who want to diversify their investment portfolios.

Make sure you get everything on paper, however, and legalise the soul out of this collaboration, so both parties enjoy their peace of mind.

5. Home Equity Line of Credit

We put this last on the list because it is the most obvious choice if you already own a home. In short, a home equity line of credit means borrowing money from your current residence. This type of credit – which is not the same thing as a home equity loan, so pay attention to what the lender tells you – allows for property investments with no problems.

The good part is that with this type of credit line, you receive a credit limit, and you pay interest only for the amount you use. The best part is that property investors – such as yourself – benefit from tax deductions on interest repayments on investment properties. While the U.K. government lowered these deductions to 25% for the year 2019-2020, you are still making a good deal.

Bottom Line

You do have some means to come up with a down payment without sacrificing the next fifty years of your life entangled in interest rates and taxes. Find the best solution for your needs and discuss matters with a financial advisor.