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An investment property is intended to earn profit for its investor. Most investors acquire these properties using investment property loans. Experts recommend searching for the best deals on investment property loans to avoid unreasonable rates and demands if you are interested in buying property.
This article explains what an investment property loan is and how it benefits customers.
WHAT IS AN INVESTMENT PROPERTY LOAN?
It is the money that investors borrow specifically for buying and upgrading property as an investment tool. An investment loan is for a property that has been purchased with the intention of getting a return on investment (ROI), either via future resale, rental income, or both.
An investment property loan can improve a property’s value, increasing its value in the market. Investment loans can either commercial property loans or residential investment property loans.
Commercial property loans are used to purchase or upgrade a commercial property for the sole purpose of ROI. On the other hand, residential property loans are used to acquire or upgrade residential property.
TYPES OF INVESTMENT PROPERTY LOANS
These loans come in different categories, including;
1. Fix and flip loans
They are short-term financing options designed for investors flipping houses. These are short-term property investment loans with 6-36 months terms and technically carry high interest rates.
2. Conventional Mortgages
Conventional mortgages are your regular home mortgages. However, they require large down payments and tend to charge high rates. You may also be required to demonstrate significant cash reserves.
3. Home Equity
Most investors use equity built up in their houses to finance investment purchases, either via a home equity line of credit or a home equity loan. Home equity is typically less expensive than alternative loans and may require zero or a small down payment. Home equity investment loan is secured by an investor’s primary home. In case of default, the investor risks losing the house.
HOW TO OBTAIN AN INVESTMENT PROPERTY LOAN
You can obtain an investment loan in various forms and ways. The loans may be provided by mortgage brokers, banking institutions, or private investment firms. The loan can be for small or large sums, depending on an investor’s needs and preferences. Moreover, an investor can obtain the loan for long-term or short-term plans with fixed or variable interest rates included.
To apply for an investment property loan, you need;
· Social security card
· Your credit report
· Bank statements
· Driver’s license
· Pay stubs
· Investment and retirement account statements
As a self-employed borrower, you will also need;
· Cash flow and asset statement
· Business bank statement
· A business or occupational license
· Two years of tax returns
BENEFITS OF INVESTMENT PROPERTY LOANS
The most prevalent reason why investors seek funding in the form of investment property loans is that perhaps they lack sufficient cash to pay the property’s full cash price. However, there are other benefits that come with taking an investment property loan. These include;
· Leveraging [https://www.investopedia.com/articles/mortgages-real-estate/10/increase-your-real-estate-net-worth.asp] or borrowing allows investors to make a bigger investment with a smaller initial outlay. As such, any returns will be magnified, whether they are from the rising real estate prices or rental income.
· Borrowing an investment loan provides a long or short-term investment option. With the loan, you can invest in a long-term asset that could be a source for rental income or provide profit upon resale. With the loan, you can also take care of emergency repairs, which ultimately increases your return on investment.
· Unlike traditional mortgage loans, investment property loans typically allow for high loan balances
· Investment property loans do not have a primary residence requirement, unlike Federal Housing Administration (FHA) loans. You do not need to live on the property to qualify for the investment loan.
· An investor can use multiple investment loans in the quest to build a portfolio. This is unlike other loan programs such as FHA loans, which practically limit an individual to just one financed property at a time.
· With investment property loans, there is flexibility in the type and size of real estate an investor can acquire.
Investment property loans help individuals acquire property for long-term or short-term investment purposes. The key to proper investment loan management is ensuring that the loan repayment does not exceed the return made by the investment. Once you have determined the loan terms, ensure you swiftly proceed to process the property purchase or handle any pending repairs.
Like any loans, investment property loans come with risks. Take your time to think about how much you want to borrow and how readily you can repay it.