An investment property earns a profit for its investor. Investment property loans are a tool for an investor to maximize their returns by leveraging the down payment, the length of the payback terms, and the interest rate. Investors can further improve their returns by using investment loans to build where there is a need for affordable houses to rent, for instance, or to rehab a property to increase its value and cash flow.
However, investment properties are considered higher risk than residential loans for personal residence. The logic behind this is that if something goes wrong and the property loses money for the investor, it’s easier to walk away from a property if it’s not your residence.
Are You Thinking About Investing in Real Estate to Rent Out or Use as A Vacation Home for Another traveler? It Can Turn into A Reliable Source of Income. But How Do You Know If You’re Ready to Become a landlord?
We’ve created a Crash Course on Everything You Need to Know Before You Get a Loan for Your First Investment Property and Start Making Money.
An Investment Property Is Real Estate Purchased to Generate Income Through Rental Income or Appreciation. Investment Properties Are Typically Purchased by A Single Investor or A Pair or Group of Investors Together.
Buying Process Is Different for An Investment Property Compared to A Primary Home. Before You Invest in Property, Make Sure You Meet the Following Qualifications.
- You’re Financially Stable
Investment Properties Require a Much Higher Financial Stability Level Than Primary Homes, Especially If You Plan to Rent the Home to Tenants. Most Mortgage Lenders Require Borrowers to Have At Least A 15% Down Payment for Investment Properties, Which Is Usually Not Required When You Buy Your First Home. In Addition to A Higher Down Payment, Investment Property Owners Who Move Tenants in Must Also Have Their Homes Cleared by Inspectors in the Many States.
Make Sure You Have Enough Money in Your Budget to Cover the Initial Home Purchase Costs (Like Your Down Payment, Inspection, and Closing Costs) As Well As Ongoing Maintenance and Repairs. As A Landlord or Rental Property Owner, You Must Complete Essential Repairs in A Timely Manner, Which Can Mean Expensive Emergency Plumbing and HVAC Repairs. Some States Allow Tenants to Withhold Their Rent Payments If You Don’t Fix Broken Home Utilities on Time.
- The Return on Investment (ROI) Is There
Real Estate Investors Often See Positive Cash Flow with Their Investment Properties in Today’s Market, But the Savviest Investors Calculate Their Approximate Return on Investment (ROI) Rates Before They Purchase A Property. To Calculate Your ROI on Potential Property Investments, Follow These Steps.
Estimate Your Annual Rental Income. Search for Similar Properties That Are Currently Up for Rent. Find an Average Monthly Rent for The Type of Property That You’re Interested in And Multiply That Rent Price By 12 For A Year’s Worth of Income.
- You Have Time to Manage It
Investment Property Management Still Takes A Lot of Time. You Have to Put Up Advertisements for Your Space, Interview Potential Tenants, Run Background Checks on Tenants, Make Sure That Tenants Pay Their Rent on Time, Perform Maintenance on Your Property and Make Timely Repairs If Something in The Home Breaks Down. You Also Must Do All of This While Working Around Your Tenant’s “Right to Privacy,” A Legal Standard That Prevents You from Dropping by Unannounced Without At Least 24 Hours of Warning in the Most States.
Before You Decide to Buy an Investment Property, Make Sure You Have Plenty of Time to Maintain and Monitor Your Space.
Things to Consider Before Buying an Investment Property
Time, Down Payments and Returns Are Just A Few Pieces of The Investment Property Puzzle. Here Are Some Other Considerations to Think About Before You Invest.
Investment Property Loan Requirements
If You Have a Mortgage for Your Primary Residence, You Probably Know That Most Mortgage Lenders No Longer Require A 20% Down Payment to Get a Loan. Lenders Are Stingier with Loans for Investment Properties, However, Because the Risks of Foreclosure and Default Are Higher.
Most Fixed-Rate Mortgages Require At Least A 15% Down Payment with A 680 Qualifying Credit Score for A One-Unit Investment Property. Your Credit Score Should Be at Or Above 620 If You’re Applying Through Rocket Mortgage. Lenders Want You to Put Down 25% With A 620 Or Higher Interest Rate on Two- To Four-Unit Investment Properties.
It’s A Good Idea to Get Pre-approved for A Mortgage Before You Start Searching for Homes So You Know How many homes You Can Afford. You Can Apply Online with Happy Financial Group to Get an Approval.
A Preapproval Is Different From A Prequalification. A Prequalification Only Tells You How Much Money You Might Be Eligible For – It’s Not as Strong. A Preapproval Requires Your Financial Information So the Mortgage Company Can Provide a Solution That’s Customized for You. While Prequalification Only Looks at Your Credit and Your Inputted Estimate for Income and Assets, Preapproval Involves a Hard Credit Pull and Proof of Income and Assets.