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How do you finance an investment property?

Investment property is a great way to develop your passive income, increase your assets and acquire financial stability -- but first, you have to make a purchase. That's not always the easiest thing to do unless you happen to have a lot of cash laying around.

Short of getting a rich uncle to loan you the money, here are some of the ways you can approach financing:

1. Get a bank loan

Conventional bank loans are probably the most familiar to beginning investors. The only major difficulty many potential investors have is that banks often insist on as much as 30% of the property's value as a down payment. That can be difficult for an investor who is just starting out to raise on their own. Other would-be investors may struggle with poor credit scores or an unfortunate debt-to-income ratio, either of which could make them a "bad bet" as far as the banks are concerned.

2. Use your existing home equity

Tapping into your home's equity may not be ideal, but it is a good way to purchase an investment property. You can use a home equity loan that allows you to draw out what you need, as you need it, or refinance your home to extend your mortgage and simply cash out all of the equity you have.

3. Find a hard money loan

If you intend to "fix and flip" the investment property, rather than keep it as a rental, you may consider a "hard money" loan that is secured by the property itself. Lenders who specialize in these kinds of loans may base what they're willing to risk on the estimated after-repair value of the property, rather than your credit and debt-to-income ratio.

If you're feeling overwhelmed at the prospect of financing your investment property, it may be time to work with someone who can help you find funding for your dream.

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