Investing in real estate may provide excellent long-term value and help you earn passive income. An investment property loan is for a single-family, townhome, condo, or multi-family property purchased to generate rental income or a return on investment on the property’s future sale.
What is an Investment Property?
An investment property is a property you purchase with the intent to make money, whether it be from renting it out to tenants, flipping the house for a profit, or buying land for development.
It is common for people to confuse the terms second and vacation home with investment property. A second home or vacation home is a residential property purchased with the intent of occupying the property for a portion of the year. On the contrary, an investment property is owned but not occupied by the borrower.
What to Look for in an Investment Property
If you are looking to expand your real estate portfolio, you may want to consider the following factors to determine if the property will be a sound investment.
Location is vital in getting an excellent return on your investment as it may help determine the property’s monthly rent, vacancy rate, and future value of the property. Try and look for a property that is in a good neighborhood with access to stores, public transportation, schools, and local attractions.
Condition of the Property
Check to make sure the property may not need significant renovations or improvements. If so, remember to incorporate the potential renovation cost into your budget. It would be best to analyze other neighborhood comparable properties to see what renters in the area may be expecting.
Consider the cost to maintain the property on a weekly or monthly basis. Determine your threshold regarding the amount of work you are willing to put into the property or if you will need to hire a property manager.
How to Begin the Investment Property Financing Process
Once you have decided to invest in real estate, you need to find a property and secure financing before you can start generating income from the property. The mortgage process for an investment property loan is typically like that of a single-family home purchase loan.
Set an Investment Goal and Find a Property
It is essential to review your financial strategy, determine an estimated budget, and calculate the investment’s anticipated pay-off. Once you have your financial goals established, you can start looking for a property that may help you achieve those goals.
Speak with a Mortgage Specialist
Connect with one of GuardHill’s mortgage specialists to get started on your investment property loan process. Speaking with a mortgage specialist will help you solidify how much property you can afford. Additionally, get pre-approved to make you a more competitive buyer, which is especially crucial in today’s buyers’ market.
Submit an Application
Begin your mortgage application process and gather all your income and financial documents. Once your application is in, your loan originator will submit your loan to underwriting for final approval.
Determine your Long-Term Management Strategy
If you are renting out the property to tenants, determine if you want to hire a property manager to help with the day to day responsibilities.
Financing an Investment Property based on the Property’s Cash-Flow
Suppose you have a history of owning and managing investment real estate. In that case, you may be able to qualify for a new investment property loan based solely on the subject property’s cash-flow. GuardHill’s Investor Cash Flow program is considered a Non-QM loan product that allows you to qualify based on alternative documentation.
- Qualify for the loan based on 100% of the subject property’s gross rent
- Must have a history of at least 6-months of owning and managing investment real estate
- The total rental income generated must exceed the monthly debt of the property
- No tax returns are required
- Available for purchase, refinance, and cash-out transactions
Benefits of Financing your Investment Property
There are many personal and financial benefits to investing in real estate and getting an investment property loan.
You may be able to deduct certain expenses and management costs associated with the property.
Rising Property Values
If you do your due diligence and research the property, neighborhood, and comparable properties in the area, your property may appreciate and allow you to sell for a profit in the future. Many people are also looking to relocate and move to suburban areas, driving up home values in many areas.
Steady Revenue Stream
Renting out your property will allow you to generate passive rental income that you can use to pay off your investment and other related expenses.
Why Choose GuardHill?
GuardHill has over 29 years of mortgage financing experience and specializes in providing standard and out-of-the-box financing solutions for our customers. GuardHill works with numerous investors and lenders and offers various loan programs to provide borrowers with the best financing solutions possible.