Financing Your Property With Other Peoples Money (OPM)
Unfortunately with the current economic climate, financing your properties is very difficult at the moment. I was lucky a few years ago to
get a loan with Wachovia, but they have since stopped accepting new applications from non-resident investors. Most of the US banks are the same
and will not accept loan applications from foreign investors without an established credit history. See my
Building Credit article.
If you are able to, initially you should try to borrow money in your own country as you will have an established credit history and will
be able to borrow at lower interest rates.
Generally the interest rates on foreign investor loans, from American banks, is higher than a US citizen would pay. Maybe 3-4% higher and the
loan-to-value is lower. You may be required to put down up to half of the buying price.
Another option exists in the form of Hard Money Lenders. Although this sounds scary, like you are borrowing from the mob, it can be a
good source of borrowing. These hard money lenders are funded by groups of wealthy individuals looking to get a good return on their
investment. Interest rates are higher at around 10-12%, but loan-to-values are higher at 60-75% and they can offer long-term fixed rate
borrowing, just like the banks.
Financing your property is very advantageous as it can leverage your returns. For example if you are able to put 50% down on a property
then you have basically doubled your net return, because you have only put half the money in and still got the same return. That is why Cap.
Rates are so important. If you have a property with a Cap. Rate of 10% and you are able to borrow 100% of the money at 7%, to buy it. Then it has
basically cost you nothing and you are still cash flow positive. How many of those would you like to do!
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Please Note - The information contained in this section is only my opinion and should not be regarded as legal or tax advice