Investment properties are about increasing and diversifying wealth. This is great news for those looking to find a way into real estate. Investment properties provide more opportunity to travel, increase your savings, and sustain long-term growth. When considering this in conjunction with the fact that buying is more affordable than renting in 66% of housing markets across the country, it’s no surprise that vacation rentals are heating up. If you’re looking to purchase an investment property, there are a few financial paths you can take for funding.
Analyze the Financing Options
Begin the process by determining what’s available to you. Most people decide to finance their property through a traditional mortgage. However, you could be required to make a large down payment of up to 20% of the purchase price. This is because investment properties aren’t covered by mortgage insurance. Another option would be to take out a home equity loan. That would allow you to tap into up to 80% of your current home’s value to fund your investment property. If neither of these options seem like a great fit, you can either look for investment partners or find a property that is “rent to own.” The latter is a great option for those that may not have the best credit or without access to a large down payment. Rent to own allows you to increase your credit while also saving up for a larger down payment once you decide to make the purchase.
Work Through What Fits You
Once you have a handle on the options, you’ll want to assess what’s best for you. Each option could have specific eligibility requirements you have to meet. If you’re going to go the route of a mortgage or loan, make sure you understand the terms and conditions before agreeing as requirements differ by lender and financing terms. But first, analyze which options fit your needs and conditions. Then compare the loan type, amount and terms, interest rate, and any associated fees or costs. To ensure that you get approved for financing, pay down as much existing debt as possible – including your current mortgages.
Get Creative with a REIT
Hefty down payments and high interest rates can be burdensome. Alleviate that by going for a REIT –– real estate investment trust. These are companies that use investors’ money to buy and lease real estate, and they’re actually pretty easy to purchase. You’ll be paid out in the form of quarterly dividends. These companies know how to invest the money so they often offer better returns on your investment.
Calculate Your Investment Risks
Investment properties are a great way to diversify a portfolio and build your wealth. If you’re smart about how you look for financing, the journey to acquiring the property can be quite easy. Research your options and build a wealth of knowledge before signing on to any new commitments. This will ensure that you fully understand what your potential expenses are before beginning the process. Compare these expenses with the various financing options available or even find new, creative ways to invest in real estate. Before you know it, you’ll find yourself with a diversified portfolio and a fun rental home to enjoy.