If you’re a first time real estate investor, you may be left with many questions, one being, what is the best mortgage to use for your investment property? Investing in income properties can be a lucrative way to build wealth and generate a steady stream of income. Once you understand the potential real estate presents to help you reach your financial goals, it might be impossible to get the idea out of your mind.
If buying your first income property is one your mind, but you don’t know where to start, we are here to help. Contact us any time to talk about financing your investment, and keep reading for the information you need before getting started.
Why you should consider becoming a real estate investor?
People buy investment properties for a variety of reasons, each of which aligns with their financial goals, risk tolerance, and personal circumstances. One of the primary motivations for buying investment properties is to generate rental income. In some cases, the monthly rent may be higher than the monthly mortgage payment on the property, translating into predictable monthly income for you and the first way that investment properties earn you money, arguably the most popular reason that people may choose to become a real estate investor.
Additionally, real estate historically appreciates in value over time, making it an attractive option for wealth building. Investors anticipate that the property’s market value will increase, allowing them to sell it at a profit in the future. This is the second way that an investment property earns you money.
Real estate investments can also diversify your investment portfolio, reducing overall risk. Diversification helps spread risk across different asset classes, such as stocks, bonds, and real estate. By owning real estate, investors have assets that may perform differently from their other investments, providing stability during market fluctuations.
Don’t forget that real estate investments also offer various tax advantages. Investors can deduct mortgage interest, property taxes, depreciation, and certain operating expenses. Additionally, capital gains from the sale of investment properties may qualify for favorable tax treatment, such as the 1031 exchange for deferring taxes on property sales.
How much time does it take to manage an income property?
While real estate investments are considered passive streams of income, that doesn’t mean they take no work at all. Different properties will require different time commitments to manage. This is dependent on the property itself and how high maintenance the features are, like the presence of a pool or the age of the home requiring more upkeep. It also depends on the model you choose for renting.
A short term rental like an Airbnb can earn significantly more in rental revenue than a long term rental, but the time commitment to manage it is also substantially higher. You will need to manage not only the property, but the hospitality side of the business as well as keeping up with furnishing the property. A long term rental property with tenants who live there for months or years at a time can be much more passive and require very little time to manage.
What type of investment property should I buy?
Whether you’re experiences or new to being a real estate investor, investment properties can vary greatly, and there is no one type of real estate that is going to be best for your first investment. To determine what type of real estate you should be looking for, ask yourself these types of questions:
- Do I want the lower maintenance of a long term rental, or the higher profit potential from a short term rental?
- Is a single unit or multi unit property a better fit for me?
- Should I take on a fixer upper or something that is ready for tenants right away?
What is the best way to finance an income property?
There are many options available for real estate investors when it comes to financing your real estate investment. If traditional loans don’t seem like the right fit, or if you can’t qualify for them for some reason, consider what we think is the best way to buy an investment property: a cash flow mortgage.
This type of mortgage is approved based on the potential for income that the property presents, not on your personal income. By looking at the appraisal report and comparable rental properties in your area, we can estimate the predicted rental revenue from the property and approve your mortgage based on that number. In other words, as long as the rental income you make each month will cover the monthly mortgage payment, you can get approved no matter what you personally make.
The requirements for a cash flow mortgage are more flexible than you may think. There is no income or employment verification, no DTI calculated, and no tax returns to show. If you have a credit score of at least 600, the property is set to be profitable, and the loan is between $150,000 and $2,000,000, you are ready to apply. There are 5/1, 7/1, and 10/1 ARM options available, as well as interest only.
Ready to learn more about becoming a real estate investor with a cash flow mortgage? Contact us any time.