Property and Realestate Investment Resources
Do not get confused, the term investment property loan simply means a loan for investment of properties. These properties to be invested on are deemed to be profitable in the future that is why people loan to buy them. Presently, the real estate industry has become a lucrative business. A lot of realtors have testified on how they have come from rags to riches after getting into the real estate business. Depending on your talent and the circumstances, loaning to invest on a property may provide you with a good chance of building equity while nurturing the potential of capital gains as the value of the property appreciates over time. If you have the ability, it is definitely not a bad endeavor to try.
An investment property loan can be generally classified into two: residential and commercial. A residential loan is associated with investing residential properties like apartments, condos, buildings (with at least 5 units), stores, or warehouses. They are usually bought for expected future appreciation and rental income. On the other hand, a commercial loan is the one associated with investing on business and commercial areas. They are often more costly since bigger income is also expected to come from them.
Individuals are not the only ones loaning to invest on properties though. Quite a number of real estate investors in the U.S. make use of investment property loans in acquiring real estates too. There are two basic advantages on this. They can benefit form capital growth and tax deductions. Another important benefit comes from “negative gearingâ€.
In essence, the word “gearing†means borrowing for investment. A negatively geared investment means it is a property purchased using a loan where the expected income (after all the expense deductions) from the investment is less than the annual payable interest. This gives the investor a substantial tax benefit since they may deduct the cost of owning an investment property from their income which is taxable.
An investment property loan can come in different shapes and sizes depending on the requirements of the investors. They may be offered as interim, long-term or short-term loans. If you are interested in engaging into this kind of investment, you should make sure that you are knowledgeable of the terms of the loan. Make sure that you understand the interest rate and the time period of it. You must also keep track of the schedule. You want extra profit and not bigger credit.
There are quite a number of reputable investment property loans in the U.S. Most of them do not provide any limit on the number of properties you could own. They also offer adjustable mortgage rates and they have low down payment options. This is a great help because you can simply use the spare money to repair or renovate the property for future profitable use like reselling it or having it rented.  A lot of loan providers also offer application online meaning you will not have to waste time setting an appointment with them or going to their office. Their online service allows quick and easy processing of your application for loan.
7 Responses to Knowing What Investment Property Loan Is
__A_YAHOO_USER__
October 26th, 2010 at 1:26 pm
Most people who invest in rental income earning properties will take an interest only loan. This helps to keep the cash out-flows to a minimum. With interest only loans you do not have the facility to pay down the principle as the loan is usually fixed for 1 to 5 years.
If you are able to save the amounts you mention then you should set up a separate savings account and deposit money into that account.
At the end of the term of the fixed loan you will be able to then renegotiate another interest only fixed term loan for a reduced amount ( depending upon how much you have saved in that special account).
The reason for taking an interest only loan on the rental property is that all the money paid out in interest is an allowable deduction against the income earned on the property. Quite often the rental property can be operating at a loss ( ie negatively geared). The loss is used to offset income earned by the owner from their employment. This helps to reduce their income tax liabilities. If you are earning income that attracts say 40c in the dollar income tax on your top dollars, for every dollar of loss from your negatively geared investment property, you will reduce your income tax payable by 40c.
You should discuss this with your accountant or financial advisor or educate your self on the taxation implications.
oasisdaniel
October 26th, 2010 at 2:38 pm
Interest rates are often variable with Interest only loans. If your payment is $500 a month on an interest only and $700 on a 30 year fixed, when interest rates go up your payment could increase to $700 a month (or more), so you could be making the same payment and not gaining equity in a paid of mortgage.
Also, you will be in debt forever. $500 a month for the rest of your life is…
In investment property you should strive for cash flow and equity, all of which is achieved greatest when your property is paid for.
Deeva
October 27th, 2010 at 12:54 pm
No, no, no. You do NOT use your own money and you do NOT use your own credit. What you need to do is search google for "hard money lenders Atlanta" and find someone to give the deal the money, NOT to give YOU the money, but to give the house the money.
In other words, you find one of the houses on the site below for sale for 50% of the value, lets say the property is worth $100,000 ARV (after repair value). So it is for sale for $50,000 and there are $10,000 worth of repairs (you will also have to find a cheap wholesale contractor that is use to working with investment properties, another google search or ask an investor in the area). You bring the estimated ARV to the hard money lender and show them how they will make their money plus interest on their investment. $50,000 purchase price + $10,000 repairs = $60,000 cost of the house. That is a $40,000 sales profit.
If you want to rent it out, then you show that too instead of the sales profit. If you get $1,000/month in rent – $100 property management fee = $900 left – $300 your fee = $600 payment back to the investor over 10 years and he has just made all of his money back plus $12,000. That is only a 5% return, but these prices are rediculously high. You will likely want to buy a house for WAY less and fix it up. The deals are out there. You might want to rehab (flip) a house a couple of times to get quick cash. The reason the hard money lenders will want to give you the money if because of the return on investment and because if you don't pay them, they get the house and get their money back that way.
jonathanj003
October 27th, 2010 at 11:34 pm
Something isn't closing properly on your math. Your loan for the 90% of the purchase price in Option #1 is at 6.875%. That part is ok, but on the second loan with 80% at 7% and 10% at 9.14%, the blended interest rate on that package is 7.24%. Your higher interest rate option has the lower payment which doesn't add up with the statement that the both loans on the second option are 30 year fixed.
The rates may be fixed for that long, but the 10% loan is likely an interest only where the principal isn't repaid. IF you are ok with that, go ahead, just make the realization that these two packages are not an apples-to-apples comparison.
good luck!
ps – the game for rental properties is almost always cash flow
EDIT – If you can find a lender willing to do the 90/10 and let you avoid PMI, then it seems like that is your best bet. Cash flow is king.
Josh
October 29th, 2010 at 4:49 am
I doubt it. But it is likely that the interest rate on a mortgage will be cheaper money than a SBA loan anyway. You could use the SBA loan to get your business started for operational expenses then get the mortgage to buy the first property.
CW
October 29th, 2010 at 5:42 am
Most standard investment loans require 20% down. It used to be easier to get some at 10% down or even 0%, but those free money days are quickly going, goin, gone. Most investor loans run .5-1% higher than a residential loan. Investment loans can run from 15-40 years, depending on the amount of the loan and your needs.
An excepton to this is if you buy a VA or Bank foreclosed house. The VA offers "Vendor Financing" for investors at 6.5% for as little as 5% down, although there are limited numbers of these properties. Banks selling foreclosed homes also are often willing to provide good financing deals if you are an investor with good credit and some cash.
One thing to advise, with today's mortgage situation it is very important that you make sure the financial structure of any deal is smart. On poster mentioned the old addage that "borrow as much as you can" and in normal times that is good advice. However I lived through boom and bust, in particular I lived through the S&L meltdown of 1980. When you have a situation where property values are DECREASING, as they are in many areas of the country, maxing out mortgages becomes a dangerous strategy.
The idea of maxing out mortgages works, because even if you end up in a financial pinch you can always refinance or sell your property for more than you bought it for. However, for the next few years, if you are able to get a 90%down loan your property may not be worth that next year and you will be stuck on the fast road to foreclosure and bankruptcy.
Don't get me wrong, buying investment real estate is a great move right now, the best investment you could possibly make. But the market has changed drastically and people who don't adjust to the realities will lose money. Now is a time to buy properties cheap, with conservative loans and rental situations where you get good monthly income and wait it out for 2-5 years when the market recovers. Then you can either sell for enormous profits or refinance to pull tax free money out of your property and keep on renting it.
I'm also working with partners to purchase properties that are light fixer-uppers cheap, do the repairs, refinance to get our investment out, then rent it out. Before we would have flipped it, but the financing and the buyers are not out there to make it worthwhile. If nothing else, all those people being foreclosed on need some place to live.
You will make an imense amount of profit, but it will take more time for the profits to show themselves.
Hope this helps, and I'd love to hear how you do
deerojalemap
October 29th, 2010 at 9:02 pm
Not good credit, no down = you are not getting a loan.
The only 100% financing is VA or USDA, but if your credit is suspect, you aren't getting that.