Real estate is one of the investment choices investors tend to go for aside from starting a business and trading in the stock market. Investing in a property requires thorough research, comparing risks and benefits and a long-term commitment. By knowing the basics when it comes to investment properties, its pros and cons and ways on how to finance the purchase, one can get a better grip if this type of investment is right for you.
What are Investment Properties?
Investment properties are the type of real estate bought by individuals with a return of investment in mind. Most people choose to purchase an investment property to either resell it in the future, gain income by having it rented or both. One can keep the investment property in the long term while some choose to renovate the said property and sell it at a much higher price.
What are the pros of investing in property?
- Investment properties are less volatile than stocks.
- Stocks are non-tangible. Investment Properties, on the other hand, you can see them and feel, giving you satisfaction no shares can provide.
- One can deduct the taxes on the interest rate of an investment property.
- It lets you leverage your investment by allowing you to buy more with less.
- If you’re able to buy the property at a reasonable price and was able to sell it at a much higher price, you can get your capital back and earn more money.
- If you choose to have it rented, you’re able to generate income.
What are the cons that come with investing on a property?
- Investment properties are not that easy to sell, which means you may need to wait or look for other alternatives if you need quick cash.
- With the property market being ever-changing and unpredictable, you’re affected by its movement and can cause many aspects of your investment property to either rise or fall.
- If the income you generate is not enough, you will need other ways to pay for mortgage fees.
- Investment properties have high entry and closing costs.
How can I finance an investment property purchase?
There are several ways to fund your investment property purchase and some of which are the following.
By Tapping On Your Home Equity
Some investors rely on Home equity loans to buy an investment property. By taking out a Texas Cash Out Refinance Investment Property, you get to make better use of your equity to get a lump sum of cash. The amount you can get will depend on several factors. One needs to be careful as you’d be using your home as collateral with a Cash Out Refi.
Through Investment Partnerships
Partnering with another investor who has enough cash to pay for the down payment is another way to buy an investment property. Fees and income are split between you and your partners. However, you can acquire the investment property quicker with a partner to back you up.
Through Seller Financing
There are investment property sellers who are very much open to letting you take a loan from them directly for you to make the purchase. Instead of applying for a loan from your lender, the owner himself will handle the mortgage process. You and your seller will agree on the terms and rates of the loan by signing a promissory note.