Comparing Rental Loans and Short Term Loans in Real Estate Investing
Updated: Jan 10
Rental loans and short-term loans are two financing options that real estate investors may consider when looking to fund their investment properties. While both types of loans can be useful in certain situations, they also have significant differences that should be carefully considered before making a decision.
Rental loans, also known as rental property loans or investment property loans, are loans specifically designed for the purchase or refinance of an investment property. These loans typically have longer terms, with 15 or 30-year repayment periods being common, and may require a down payment of 20-30%. Rental loans also often have higher interest rates than traditional mortgage loans, but this is offset by the fact that the property is expected to generate rental income.
One of the main benefits of rental loans is that they provide a steady stream of income for the borrower, as the rental income from the property can be used to make the monthly loan payments. This can be especially useful for investors who are looking to hold onto their investment properties for the long-term.
Short-term loans, on the other hand, are loans with shorter repayment periods, often ranging from a few months to a few years. These loans may be used for a variety of purposes, including the acquisition of an investment property, the rehabilitation of a distressed property, or the refinancing of an existing loan. Short-term loans often have higher interest rates than longer-term loans and may require more frequent payments, but they can be a good option for investors who are looking to flip a property quickly or who need a flexible financing solution.
One of the main benefits of short-term loans is that they allow investors to quickly access the funds they need to take advantage of investment opportunities as they arise. They also allow investors to have more control over the timing of their loan payments, as the shorter repayment period means that the loan will be paid off more quickly.
When deciding between a rental loan and a short-term loan, real estate investors should consider the specific needs of their investment strategy. For example, an investor who is looking to hold onto a property for the long-term may be better off with a rental loan, while an investor who is looking to flip a property quickly may prefer a short-term loan. Ultimately, the right choice will depend on the individual circumstances of the investor and the investment property.