Understanding Loan Terms

Understanding Loan Terms

Investing In Real Estate? 4 Reasons To Use Investment Property Loans

Stanley Simmons

Have you identified a property you think has big potential for flipping? The first constraint you could face is financing. Many people make their first investment in real estate using a second mortgage. However, lenders become doubtful if you go for a third mortgage. Instead, you should start working with investment property loans. This financing is for residential rentals or commercial properties. Sometimes they are called fix-and-flip loans because many seasoned investors use them to buy, fix, and flip the home. What advantages does this type of loan offer?

Higher Liquidity 

One of the biggest hurdles in real estate investment is liquidity. For example, if you only have $100,000 cash and you invest it all in a property, it is hard to fix the property to the required standards. But you can put down 20% of that money and access $80,000 in financing. That leaves you with ample cash for renovations and repairs. High liquidity is also desirable because opportunities could arise in other areas apart from real estate — for example, you may want to invest some of that money in stocks. 

Faster Scaling 

Sometimes multiple opportunities come up in a hot property market. For example, you may want to grab several properties but have limited cash. Investment property loans enable you to build up your portfolio quicker than you could using cash out of your own pocket. 

For example, say you have three properties at $100K, $120K and $150K. You would need $370K in cash to buy them all, money that may not be at hand. Instead, assume you need to put down 20% on fix-and-flip loans. You could grab all three properties at only $74,000. Your portfolio is now worth $370K instead of the $100K property you could have bought in cash. 

Tax Benefits 

As a landlord, you are entitled to tax deductions on your mortgage interest and other financing costs. The costs of fixing the properties are also deductible, including maintenance costs. In addition, any local taxes you pay related to the property are deductible on your tax returns.

In effect, this reduces your real mortgage payments. For example,  if your mortgage payments are $7,000 a year but your tax deductions are $4,000, your real mortgage costs are $3,000. 

Diversification 

Portfolio diversification is desirable in real estate investment since nothing is 100% sure. You can diversify your portfolio with a mix of commercial property and residential rentals. Using investment property loans gives you the flexibility to work in different property markets. 

Would you like to access quick financing to grab a hot property? Talk to hard money lenders about fix-and-flip loans. 


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Understanding Loan Terms

When was the last time you realized you were in the red financially? Although most people don't think about their finances on a day to day basis, it can be easy to find yourself living paycheck to paycheck if you aren't careful. I began thinking carefully about the financial implications of some life decisions I was making, and I knew I had to make a difference. I talked with a loan officer about getting things together, and he was instrumental in helping me to work things out. Read more about my financial successes and failures on this little website. You might be able to avoid some of my previous mistakes.

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