Tips for Financing An Investment Property

While the economy is slowly improving, the real estate market is improving as well, which means there are both seasoned and new investors looking to purchase properties in order to make a profit. The good news is that prices are low, which makes investment properties affordable, but the issue lies within the fact that in today’s real estate market, easy financing is not so easy anymore. This means both seasoned, as well as new investors, are required to meet specific criteria before they are approved for an investment property loan. By making the right preparations and knowing what is expected during the loan approval process, investors can increase their chances of loan approval.

Credit is Important

Credit is important for a variety of reasons. First, a cash investor may decide that they would like to invest in multiple properties, which usually requires bank financing at some point. Secondly, when a cash investor decides that they would like to keep their investment property long term, they may need to take out a mortgage loan. There are also investors that put up a down payment on their properties and rely on financing for the remainder owed, and banks rely highly on credit scores as part of their approval process. By monitoring your credit report, keeping up with monthly payments, and addressing any discrepancies as soon as they come up, you will be aware of your credit status before you begin the loan application process.

Build Your Profits Into Your Deals

In the past, many investors found themselves in hot water with their properties due to speculating on the rise in home values, only to have the market fall from under them. With the real estate market making its way back, it is important for an investor to know what their profits will be based on current information instead of taking a risk or gamble on what the future may bring. Buying rental properties based on their current cash flow and expenses will allow for accurate information when applying for financing, which will increase your chances of obtaining the loan. Additionally, when purchasing a rehab deal, it is important to buy the deal with enough margin, as this will ensure that you will make money on the property whether or not an unexpected expense were to come up.

Maintain Reserve Funds

It is always a good idea for real estate investors to maintain an adequate amount of reserve money. This is helpful in many ways. Not only does having adequate reserves give you a better chance at obtaining financing, it also important simply based on the fact that at one point or another, an unexpected expense will most likely arise, and having the funds on hand to handle these expenses is very important.

While all investments carry a certain amount of risk, real estate investments can prove to be very lucrative when they are handled properly. By maintaining your credit, keeping adequate reserves, and educating yourself on the approval criteria, you will be well-prepared when the time comes to start the application process for your investment property financing.