Guide to Investment Property Financing

 

The Benefits of Investment Property Financing

Some people don’t like the idea of using debt, but vacation rental property loans are a financial tool for property investors. With the right property investment strategies, you can use investment property financing strategically.

Investment property financing has a number of crucial benefits for investors, like:

Reducing upfront cash expenses:
While you’ll still have to make a down payment for an investment property, with vacation rental property loans, you can reserve the extra cash to handle other expenses or invest in other properties.

Providing a fixed monthly payment:
The most effective investment property financing options offer a fixed monthly payment rather than a variable one, like with a line of credit. This can make it easier for you to forecast your monthly rental income projections.

Allowing for future investment options:
With the equity you build in your property over time, you might be able to qualify for additional investment loans. That includes equity loans on conventional and blanket mortgages, as well as the potential to refinance rental property loans.

Investment property financing isn’t just about taking out debt. It’s about using your liquid assets wisely and taking advantage of loan opportunities that can still yield a significant ROI.

4 Types of Investment Property Financing

The first thing you need to know about investment property financing is that there are a variety of loan types. The right one for you will depend on many factors.

1. Conventional mortgages

One of the most common types of investment property financing options, especially for people who want Airbnb financing, is a conventional mortgage. These loans are backed by one of three government agencies — Fannie Mae, Freddie Mac, and the Federal Housing Authority.

Conventional mortgages will generally have the most competitive rates, but they may also have the most restrictions and limitations on using the loan for an investment property. You’ll have to submit a credit check and have an alternate source of income to apply.

2. Hard money loans

If you are interested in flipping houses — that is, you want to buy a piece of property, renovate or remodel it, and sell it to someone else — you might be interested in hard money loans. These are short term loans that you pay back when you sell the property.

Hard money loans, also referred to as “fix and flip” loans, are convenient for people who don’t plan to rent their property. They are not a great option for most rental properties unless you have a source of cash to cover the loan balance when it’s due.

3. Blanket mortgages

Property investors who want to purchase multiple properties will want to find blanket mortgages. Blanket loans are loans that cover the title for more than one property. They are common for commercial investors who want to create subdivisions or sell property in individual units.

Blanket mortgages can be a little more expensive than convention mortgages, but they offer efficiency and convenience. Without them, you’d have to apply for a mortgage for each property you want to purchase and either sell or rent.

4. Equity loans and lines of credit

Another common type of investment property financing is an equity loan. With an equity loan or line of credit, you use the amount of value you’ve built up in your home (minus the loan balance) to act as collateral for a new loan.

Equity loans generally have restrictions on how much you can borrow, and they might be riskier if you only have one or two pieces of property. You can also take out equity loans against blanket mortgages, but they have risks, too.

How You Can Find the Best Investment Property Financing

With so many types of investment property financing, it can be difficult to narrow down the best investment loan options for you. There are several factors you need to consider before you apply for financing. If you dive in without any property investment advice, you can make some costly mistakes.

To find the best investment property financing options, follow these simple tips:

Decide where you want to purchase property: Location is a critical aspect of the types of loans you can receive. For example, certain cities don’t allow short-term rentals, so you won’t be able to get Airbnb financing. Certain lenders might have restrictions on your location, as well.

Research the best loan types for your location: The type of loan you want will vary depending on your property and location. If you want to purchase an apartment complex, for instance, you’ll need to decide whether you can qualify for a conventional mortgage or need to look for something else.

Compare the costs and benefits of each loan: You really won’t know which offers are best until you fill out a few applications. Most lenders give an idea of their rates, but everyone’s situation is unique. Compare the APR, length of the loan, and any other fees that are associated with it.

With a little bit of time and research, you can find the best investment property financing for your investment goals.

Tips for Choosing the Right Investment Property Financing

Once you have a few offers to compare, you’ll need to make a hard decision. If your primary goal is to generate as much monthly revenue as possible, the loan with the lowest monthly payment will be the best choice. If your goal is to maximize your ROI, you want the loan with the lowest interest rate.

The right investment property financing will offer the most appropriate combination of financial value and client experience.

Looking for the best investment property financing options? Rental Home Financing has an extensive selection of investment tools depending on your financial goals.