What is an acquisition loan?
When an investor is looking to finance the acquisition/purchase of a real estate investment property, an investor will seek an acquisition loan.
Who should get an acquisition loan?
An acquisition loan would be a great fit for any real estate investor looking to add to his rental portfolio. When real estate investors find an investment opportunity but don’t have the capital to acquire the property without financing, they look for an acquisition loan in order to execute the deal.
Benefits of an acquisition loan?
Acquisition loans allow investors to scale their real estate investment portfolios at a much faster rate and relieve investors from missing out on investment opportunities due to the lack of capital.
Disadvantage
Acquisition loans don’t take into consideration the renovation / rehab that the property will require. This is a disadvantage for real estate investors with a fix and flip business plan. Acquisition loans eliminate rehab/renovation costs from the loan sizing calculation and only size the loan using the property’s value.
Investors can only use a certain percentage of the loan to rehab each property. The amount is based on the property’s value and the maximum percentage allowed per property. Lenders do this to limit the risk of an investor deploying too much capital on one property.
Example
An investor from South Africa has $250,000 in liquid assets ready to invest in real estate. The investor discovers four opportunities.
Property 1 = $180,000
Property 2 = $150,000
Property 3 = $160,000
Property 4 = $130,000
To acquire all four properties the investor would need $620,000. The investor alone can’t afford to purchase the four properties. However, acquisition loans allow the investor to purchase all four with the help of financing. An acquisition loan is an incredibly helpful tool for real estate investors as it helps them scale their business, wealth and income.
