When you start saving a good amount or come into a good bit of money, the smart thing to do is to invest it in a good property. But for the beginner, this can be a daunting task. There are many things to consider when you want investment properties. We will discuss a few important factors that you should regarding investment properties.
5 Types of Real Estate Investment Properties
If you intend to invest in real estate, you should know what options you have.
Commercial Real Estate Investments
These include investment mostly in skyscrapers and office buildings. For example, you can take some of your savings and with them construct a small office building with individual offices. You can then rent out these to various companies and small business owners. In commercial real estate it is pretty common to have multi-year leases. Multi-year leases allow for great long term stability in cash flow and protect the owner when rental rates go down. But if the rental increase over time it may not be possible for the owner to benefit from that since the office building already has a set rent agreement.
Retail Real Estate Investments
This kind of investment consists of properties such as malls, and other retail storefronts. There are different approaches one can take with this investment. The landlord can receive a share of the percentage of the sales generate by the store. The landlord can also keep a base rent so that the tenants have an incentive to keep the property in god condition and protect it from damage.
Residential Real Estate Investments
These are properties in which the tenants pay you to the live in the family. The properties include houses, apartment buildings, vacations houses, etc. One person or a whole family may be the tenants. The landlord signs a rental agreement with the tenants which decides the rent the latter will pay and the length of their stay. In the US, most of the residential rental agreements are for twelve months.
Industrial Real Estate Investments
In this category, there are many different types of properties you can invest in such as industrial warehouses to car washes, storage units or you can lease the property to customers who need to use the property for a short period of time for some specific function. Industrial real investments usually have substantial fees and service revenue streams.
Mixed-Use Real Estate Investments
This kind of investment involves a combination of any of the above types into one single project. For example one investor might buy a 3 floors building. He may have residential apartments on the first two floors and offices on the third floor. Investors with substantial assets are drawn to mixed-use real estate investments because of the diversity which is important for risk control.
Features of a Profitable Real Estate Investment Property
Before your start investing, you need to know which property is the right one to invest one. Even if you have decided which type of property you want to invest in, it would be a good idea for your get some investment property advice. Before you go buying any investment property for sale, make sure the property has these features.
As an investor who wants to make money from rent, you should know how much money you will lose to taxes. You may find a property has high taxes but if you have an excellent property in the right neighborhood that will get you paying, long term tenants, the high property tax will be covered. But that isn’t necessarily true so have all the necessary tax information and maybe talk to a few property owners in the area.
The quality of you’re the neighborhood/area in which you buy your property will determine not only the type of tenants you get but also the how many tenants you will get. For example, if you build a shop or office near or close to the market place, you will get more business owners. You choose the neighborhood based on several factors. For example, the crime rate. For residential properties especially, you need to check the crime rate of the area before you invest. Check for nearby amenities as well for a residential property. Public transport hubs, shopping malls, gym, library, are all places whose proximity will make your residential investment property even more attractive to potential tenants.
An area that has growing employment rates will have more tenants. Young men and women will flock to such areas and look for residential properties to live in. Or if you invest in commercial or retail real estate there will be small businesses looking for a property in which to open their office or shop.
Your rental income is what will support you and your rental property so you need to check beforehand what the average rent of that area is. You will have to pay a number of expenses such as property taxes, mortgage payments that will depend on your investment property mortgage rates, and utility bills. If you don’t think the average rent in the area will cover your expenses, then don’t invest in that property. You will have to keep looking. Make sure you do all your research beforehand and try to understand where the area is headed in the next few years. If it is affordable for you now, will it be so in the future as well?
Investment Property Loans Interest Rates
It is obviously to your advantage if you have low interest rates on your loan. But that may not always be possible so we suggest that you keep your credit score as clean and high as possible so you may be able to negotiate for you interest rates with the bank.
Investment Property Refinance
The whole purpose of refinancing should be to ensure that refinancing will save you money, instead of adding more astronomical costs. This becomes trickier when taking investment property into consideration as opposed to primary or secondary residences, as the requirements and demands for refinancing investment properties from lenders are quite different. When thinking about refinancing an investment property there are several things you should keep in mind before you make this decision to ensure that refinancing is the right decision for you.
You will have to pay a higher interest for investment property
Before you consider refinancing your investment property you need to understand what to expect from the lender. The lender is likely to quote much higher interest rates for an investment property than a residence as they consider it a risky investment. This stems from the fact that during times of financial distress, the property owners are likely to pay their mortgage on their primary residence before paying for the investment property simply because they do not want to lose their home. This mentality is what makes lenders less likely to finance investment properties in the first place, and when they do it is always at a much higher interest rate as compared to the residential property. Hence you need to consider your closing cost, your fees and the duration that you will have the property to justify refinancing your investment property.
There will be much stricter LTV requirements for investment properties
Expanding upon the lenders evaluation of financing your investment property, they will consider your property to be a greater financial risk if your loan-to-value ratio is high. The LTV basically gives information about how much equity you have in your home. If your LTV is high that means you don’t have much equity built up, hence your property will seem like a much higher risk to the lender. This will cause to lender to increase the interest rate to make it worthwhile to him. Hence, before refinancing consider your LTV ratio and decide accordingly.
Additional financial documents will have to be prepared for the lender
As with the refinancing of primary residence, the lenders will need to see your credit score, debt-to-income ratio and income matter to get a refinance for investment property as well. However, as already discussed, due to the greater risk posed by financing investment properties, lenders have a different criteria of evaluation for investment properties as compared to primary residences. In addition to the typical financial documents they will need to see tax returns and statements detailing assets and debts. According to the requirement of certain lenders, the investment property owners might be expected to have six months or more of monthly mortgages in the bank in order to be considered by the lender as a suitable candidate. If investment property owners get rental income from their tenants they will need to prove this by providing checks, bank statements or any other documentation of payment by the tenants.
Hence, once you have considered all of these factors and feel that refinancing will be suitable for you, the first thing you need to do is prepare all of your refinancing documentation. You must then define the purpose of your refinancing and then look around for the best refinancing deals that would suit your needs in the best way possible.
Getting Investment Property Loans with No Money Down
Investing in real estate is an attractive option for many people, and people often want to make this investment but can be prevented from doing so because of financial concerns. The hurdles people often face are that they either do not have enough money for a down payment or they are unwilling to have their cash locked in a property purchase. However, there ways to combat these hurdles as it is possible to buy property with no money down. There are several ways you can go about this depending on what suits you best.
An interesting way to obtain down payment is by using an equity you have already built up at another property. You can use this built up equity as a down payment when purchasing another property.
Find something other than cash to trade
You can trade anything from cash, land, jewelry, valuable collectibles etc. Find out what is needed and perhaps you can provide more easily than having to conjure up cash. You can even trade services instead of cash and provide these services for the seller over a certain period of time, depending on their needs.
Trade properties with the seller
Trading property is a legal way to avoid gaining capital that comes from obtaining investment property. You can do this by exchanging properties with the seller, perhaps by trading a large property for several smaller rentals.
Try to negotiate a separate installment plan for down payment
Go for an installment plan that will best suit your needs. Sellers can sometimes allow you to pay down payments on a monthly basis which will make it easier for you to juggle your finances.
Find yourself an investment partner
This can greatly decrease your financial burden as you can split the payments between the two of you and can better manage through an equity-sharing partnership.
Look for loan assistance programs that suit your needs
It is important that you explore your options and talk to your bank about obtaining a loan. There are several lending institutions that offer programs allowing buyers to put in little to no money down on real estate purchases. Be sure to explore this option and make the best of what is offered to you.
Eliminate down payment by financing 100% of the purchase price
If you have a sound credit rating and lending history, some lenders are willing to let you finance the entire purchase price. This will lead to a much higher interest rate as compared to putting money down. However, if your intention is to quickly sell the property then your profit generation should not be vastly affected.