How an Investment Loan Can Help You Build Wealth

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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Every time I walk by an abandoned storefront downtown, I think about buying it for cheap and turning it into a thriving (and profitable) coworking space. However, I know I don’t have the capital available for such an investment.

One way to get the money needed is to borrow it. An investment loan can provide you with what you need to buy and fix up a property, or grow your existing business. Here’s what you need to know.

What is an investment loan?

“These are loans designed to help you fund a potentially profitable project,” said Paul Koger, the founder of investment website FoxyTrades. “They can be a great tool to help you fund the growth of your company or your wealth.”

He said some of the most common uses for investment loans include:

  • Buying an investment property (usually meant for rentals or commercial businesses)
  • Purchasing equipment needed for your business
  • Building a factory
  • Buying a competing company

Most people and businesses don’t have the cash available to make such large purchases. With the help of an investment loan, it’s possible to get what you need to move forward without needing to come up with the money entirely on your own, said Koger.

How much can you borrow?

Kroger said there are lenders willing to offer investment loans to finance 100% of the project. However, such lenders can be hard to find. Instead, you’re more likely to receive up to 70% of the money needed for a purchase, he said.

For example, if you wanted to buy a fourplex property for $500,000, you might be able to borrow only $350,000, which means you have to come up with $150,000 for a down payment.

If you have a healthy rental business and are adding to your empire, you might be able to come up with the necessary down payment. But that might be challenging if you’re starting out and need money to expand.

In those cases, it can make sense to look for a lender that’s willing to accept a lower down payment, even though it might mean you’ll pay a higher interest rate.

What are the eligibility requirements for an investment loan?

For the most part, traditional banks go through a process of due diligence, meaning you’ll face credit and income requirements, Koger said. Each bank has specific eligibility requirements. The process is a little different from getting a home mortgage, whether you’re buying a rental property, hoping to purchase commercial real estate, or trying to upgrade your factory with the latest equipment.

On investment loans, your repayment term is usually between five and 15 years, according to Koger. The shorter term is in contrast with a residential mortgage, where you can get a 30-year loan with smaller monthly payments.

“Banks will forecast the potential success of your project and your ability to repay the loan within this shorter time frame,” Koger said.

Alternatives to an investment loan

If you can’t get an investment loan from a bank, you can try going around the traditional system. Here are two viable alternatives:

1. Hard money loans

One way to get approved for a loan, if you can’t meet the criteria set by traditional lenders, is to turn to a hard money lender, said Aaron Norris, the vice president of The Norris Group, which specializes in real estate investment.

“Most of our borrowers don’t exactly look perfect on paper, and the inventory they are buying typically doesn’t look that great, either,” said Norris. “But we offer asset-based loans, lending primarily based on the asset’s value from a business perspective.”

Hard money lenders and other nontraditional lenders typically can also get you the money faster than traditional banks — usually within a week or so, according to Norris.

Once you get into the world of hard money investment loans, it’s important to focus on your plan for profitability and show lenders that you can deliver. It’s less about an underwriting formula, as with residential home purchases, and more about your ability to show the lender that you have a solid business plan and your investment will provide the returns you need to remain profitable and repay the loan.

However, understand that some hard money lenders can be quick to repossess your property if you fall behind on payments. Plus, you need to consider interest charges. The National Association of Realtors says you could face interest rates of 12% to 21% on a hard money loan.

2. Personal loans

It’s also possible to use an unsecured personal loan to make an investment purchase. However, it can be difficult to get the funds you need for a big project.

For example, you might be able to get a personal loan of up to $20,000 to upgrade the office equipment for your business. However, many personal loan lenders won’t offer more than $100,000 to renovate a rental property or buy an office building.

Depending on the purpose of your investment loan, it can make sense to get a personal loan — especially if the amount you need is relatively small and your good credit qualifies you for the best interest rates, which sometimes can be below 10%.

That rates can make a big difference, especially when compared to those on a hard money loan. For example, if you borrow $35,000, here’s what you’d pay with a hard money loan at 15% for five years, according to our personal loan calculator.

How much will you pay with a hard money loan for investing?

Compare that to a loan through a personal lender with a rate of 6.5%.

Can you use a personal loan for investment?

As you can see, you could see a lower monthly payment and save money in interest charges by getting a personal loan for smaller investments.

When should you use investment loans?

If you want to grow your business or wealth by buying property, a loan can be a great way to get the funding you need, Koger said.

However, before you sign on the dotted line, make sure you have a plan for making a profit, and that you can afford the monthly payments. Compare the rates and terms you can get on a personal loan with a traditional bank, and consider a hard money lender only if you can’t qualify for other loans.

Interested in a personal loan?

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 20.01%1 $5,000 to $100,000
6.14% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 20.01% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 15, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 4.93% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
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  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

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Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

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3 Includes AutoPay discount. Important Disclosures for Payoff.

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  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
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FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
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Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

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