To correctly identify investment opportunities and ensure a long-term return on your investment, it’s important to learn as much as possible about the process for financing an investment venture. Our team here at Stanfield Real Estate have significant experience in the real estate marketplace, and within this latest article we’ll highlight the difference between financing a residential property and an investment property.
BANKS CAN CONSIDER INVESTMENTS A HIGHER RISK
One important consideration to make when seeking financing for an investment property is that banks see financing an investment property as a riskier process. Because of the larger expenditure required to finance an investment, and because an investment property is purely an income producing asset, the bank may be more stringent in their requirements. This might mean, for example, that banks require you to place a higher down payment on the investment property. It may also mean that you pay higher interest rates than those seeking a residential mortgage.
HOWEVER, TERMS CAN BE NEGOTIATED
One asset in the investor’s favor when working with financial institutions is that their terms may be more flexible than the residential property buyer’s. That’s because the financial institution may see the investment property as a lucrative source of income for their organization. When structured effectively, a real estate investment can have significant long-term returns for the property holder. This may allow you to negotiate the rates with the lender. However, it’s critical to work with a specialist to negotiate the rates effectively, and ensure your position is leveraged using all available assets.
DIFFERENT INCOME VERIFICATION REQUIREMENTS
Another important distinct between the two types of loan is the income verification requirements. Financial institutions will require you to show that you have the necessary income to cover your investment payments over the coming years. As an investor, you must show the financing company receipts from past rentals or income from a current job and prove you have the ongoing capital to afford the property. You may also have to show the financing company a business plan for the investment, including any potential future outlay for improvements to the property. This means if you’re considering an investment in the short-term, it’s important to speak with local experts about your requirements and the income verification process.
SPEAK WITH A SPECIALIST TO BEGIN THE PROCESS
Negotiating rates on an investment property is not a process that you should go forward with alone. This can become exceptionally expensive without qualified real estate specialists at your side. Our team at Stanfield Real Estate leads the local Orange County market for investment guidance. To learn more on securing financing for your investment property, call our team now at 949.392.5600.