Investing in real estate can be a great way to build wealth and secure your financial future. However, financing investment real estate can be complex and overwhelming, especially if you’re new to the market. In this blog, we’ll cover 8 things you need to know about financing investment real estate in Milwaukee, and how Northwoods Property Resources can help you find great deals and achieve your investment goals.
1. Understand Your Financing Options
Before financing any real estate investment, it’s crucial to explore all available options. Some of the most common financing methods include traditional mortgages, hard money loans, and private money loans. Traditional mortgages often come with lower interest rates and longer terms, making them ideal for long-term investments. On the other hand, hard money loans, often provided by private lenders, can offer faster approvals but with higher interest rates and shorter repayment periods, making them a better fit for short-term projects like house flipping. Private money loans are typically sourced from individuals or investment groups, offering flexible terms but often requiring established relationships and trust.
For instance, in Milwaukee, local lenders like Associated Bank and Landmark Credit Union offer tailored mortgage options for investment properties. Be sure to review lender-specific terms carefully, as they can vary widely. For further insight, consider referring to resources such as Freddie Mac’s guide to mortgages or consult with a financial advisor familiar with the Milwaukee market
2. Consider Your Investment Strategy
Your investment strategy plays a critical role in determining the best financing options. For short-term projects like property flipping, hard money loans are often preferred because they offer faster access to funds and flexible terms. However, they come with higher interest rates and shorter repayment periods, so careful budgeting is essential. For example, if you’re flipping a fixer-upper in Milwaukee’s Walker’s Point neighborhood, the quick turnaround and rising property values may justify the higher cost of a hard money loan.
Conversely, if you’re investing for the long term—such as renting out a duplex in the East Side—a traditional mortgage can provide lower interest rates and consistent monthly payments, helping to stabilize your cash flow over time. It’s important to align your strategy with your financing to maximize returns while minimizing risks. Consulting with a local lender familiar with Milwaukee’s real estate trends can also ensure you’re choosing a solution tailored to your specific goals.
3. Know Your Credit Score
Your credit score is an important factor in securing financing for investment real estate. Before applying for any loans, it’s important to know your credit score and take steps to improve it if necessary. A higher credit score can help you secure better interest rates and more favorable loan terms.
4. Determine Your Down Payment
Down payments are a key factor in securing financing for investment properties, and the amount can vary widely depending on the type of loan and lender requirements. For traditional mortgages, most lenders require at least 20–25% down for investment properties, compared to lower percentages for owner-occupied homes. However, some private money or hard money lenders may offer flexibility with smaller down payments, especially if you can demonstrate a solid investment plan.
In Milwaukee, real estate investors often find opportunities to negotiate down payments on distressed properties, such as those in emerging neighborhoods like Brewers Hill. Keep in mind that a larger down payment can reduce your monthly payments and improve cash flow, while a smaller down payment may increase costs but free up capital for renovations or other investments. Use tools like mortgage calculators or consult with a financial advisor to determine the best strategy based on your budget and investment goals
5. Get Pre-Approved
Getting pre-approved for a loan can help you narrow down your financing options and give you a better idea of your budget. Pre-approval also shows sellers that you’re a serious buyer and can give you an advantage in a competitive market.
6. Calculate Your Cash Flow
Accurately calculating cash flow is one of the most critical steps in determining the viability of a real estate investment. Cash flow is the net difference between your rental income and your expenses, including mortgage payments, property taxes, insurance, utilities, and maintenance costs. To ensure your investment will be profitable, it’s essential to create a detailed budget before committing.
For example, if you’re considering a duplex in Milwaukee priced at $250,000 with a monthly rental income of $2,500, subtract estimated expenses: $1,200 for the mortgage, $300 for property taxes, $100 for insurance, and $200 for maintenance. This leaves a positive cash flow of $700 per month. Tools like the Rental Property Calculator by BiggerPockets can help you refine these estimates and factor in variables like vacancy rates and property appreciation.
It’s equally important to account for unexpected expenses. Setting aside 5–10% of your rental income in a contingency fund can safeguard your investment from financial stress during vacancies or costly repairs
7. Have a Contingency Plan
Real estate investments inherently carry risks, and having a solid contingency plan is crucial for long-term success. Unforeseen expenses—such as major repairs, legal disputes, or prolonged vacancies—can significantly impact your profitability. Building a reserve fund equivalent to at least three to six months of expenses is one of the most reliable ways to safeguard your investment.
For example, in Milwaukee, properties with older architecture may require unanticipated repairs, such as roof replacements or plumbing upgrades, which can cost thousands of dollars. Additionally, consider diversifying your financing options by maintaining access to lines of credit or backup loans. Having flexible financial resources ensures you can navigate challenges without derailing your investment strategy. A trusted real estate advisor or accountant can help you project potential risks and develop a customized contingency plan tailored to your property type and market conditions.
8. Seek Professional Advice
Real estate investment is a multifaceted journey, and professional advice can make all the difference in your success. Consulting a real estate advisor or financial planner can help tailor investment strategies to your unique goals, risk tolerance, and market conditions. Services like those offered by Northwoods Property Resources specialize in local markets, including Milwaukee, where understanding neighborhood trends and lender preferences can significantly impact your outcomes.
For instance, areas like Riverwest or Bay View in Milwaukee may present opportunities for strong rental yields, but they also come with distinct zoning laws or property tax considerations. Professional advisors can help identify these nuances while aligning them with the right financing solutions. Whether you’re seeking guidance on loan structures, cash flow analysis, or portfolio diversification, leveraging expertise ensures you’re making informed decisions.
Remember, investing in real estate involves risks, and it’s essential to weigh these risks alongside potential rewards. Always consult multiple sources and seek recommendations from trusted professionals to enhance your confidence and success..
At Northwoods Property Resources, we specialize in buying properties that need repairs and renovating them to sell or rent out. Our team has years of experience in investment real estate and can help you determine the right investment strategy and financing options for your needs. We work with investors to find great deals and help them achieve their investment goals.
Financing investment real estate can be complex and overwhelming, but with the right strategy and professional advice, you can achieve your investment goals and build a secure financial future. Consider your financing options, investment strategy, credit score, down payment, and cash flow, and seek professional advice from a team like Northwoods Property Resources. With the right plan and a solid team, you can succeed in the real estate market and achieve your investment dreams. Give us a call today to learn more about how we can help! (920) 851-9727