Looking to scale your property investment business and grow your portfolio this year? There comes a point where you have to switch up what you’re currently doing if you want to go from making pocket money to real profits—and one of the key changes involves your financing strategies.
When it comes to scaling your portfolio, certain funding decisions just make sense. Here, we’re outlining four smart financing strategies that you should use to grow your portfolio faster, without being held back by traditional methods or your own piggy bank of funds.
Use Leverage Without Overexposing Yourself
Using other people’s money is a great way to speed up your portfolio growth, but, of course, this is a method where you’ll need to be disciplined.
You’ll increase your buying power by leveraging equity from existing properties or using interest-only loans, but only if your cash flow supports it. If you’re interested in this method, make sure to track your debt-to-income ratio closely, and avoid stacking too many short term liabilities. Lenders look for stability above all else, so your credit profile needs to be strong and all payments made on time.
Explore Hard Money Lending for Speed
When you’re trying to take advantage of a deal that’s too good to pass, using a traditional loan is rarely the solution. These take too long to close, which is why so many seasoned investors use hard money loans instead.
Hard money lenders usually approve loans based on the asset’s value instead of the borrower’s income history, which makes them ideal for financing a flip or a distressed property that should make big profits once it’s restored. Just make sure you budget for the higher interest rates, and keep in mind that hard money loans have shorter terms.
Build Strong Relationships with Private Lenders
Private financing can be the solution you can fall back on when banks say no, or even your first port of call for certain projects. The best private lenders don’t have rigid lending criteria but are more likely to partner with investors that they’ve built long-term relationships with.
If you can demonstrate a track record of repaying loans and delivering solid returns, you’ll open the door to more flexible deals with private lenders. As you become more and more experienced, you’ll ideally have a few trusted lenders that you can use to keep your deals moving.
Reinvest Profits Instead of Sitting on Equity
There’s an undeniable security that comes from holding onto profits from your early projects, but this can actually slow you down. While you might be hesitant to part with your first real property-related earnings, you’re doing yourself a service by not investing them into your next property or using the returns to cover down payments.
Reinvesting your profits means you don’t have to wait years to grow your portfolio. If you’re trying to focus on which profits to reinvest, focus on cash-flowing properties that cover their own costs and generate enough to support new acquisitions.
