Understanding Loan Terms

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

21 July 2021

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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