According to CNBC, about 12 percent of Americans invested in real estate in 2022. So, it is clearly a popular way to increase an individual’s wealth. As an example of the scope of real estate investing, consider that there are over 19 million rental properties in the U.S. and 70 percent of those are owned by individual investors, according to U.S. Census data. Successful real estate investing requires finding the right property at the right price and securing financing for investment property down payments.
The Pros and Cons of Real Estate Investing
The pros focus on the general value appreciation of real estate over time. Thus, income can be generated by holding the property for future sale and/or generating current income by renting the property. Additionally, there are tax advantages for purchasing real estate for investment purposes.
The cons include tying up an investor’s liquidity, requiring some active or passive property management responsibilities, and taking on the risks of any reverses in economic conditions or property values.
What to Know About Investment Property Down Payments
Investment property down payments vary based on the borrower’s credit history and credit score, the borrower’s debt-to-income ratio, the property’s loan-to-value ratio, the type of investment property being financed, and the requirements of the financing entity. Minimum down payments are generally:
- 15 percent for a conventional loan
- 25 percent for a non-primary residence FHA loan
- 0 percent for a VA loan
Loans for properties that have a high loan-to-value ratio will typically come with a higher interest rate and higher loan fees due to the higher risk for the financing entity.
Here are some additional ways to secure investment property down payments:
- Utilize a home equity loan or home equity line of credit (HELOC.)
- Convert funds from a traditional IRA or 401(k) into a self-directed IRA. That typically requires using a custodian to assure compliance with tax laws.
- Develop a group of investors who will pool their assets to provide a down payment.
- Secure funds from a private lender.
- Work with a commercial lending specialist.
How to Buy an Investment Property
First, begin by determining your investment goals and strategy, along with a timeframe to reach your goals. You can buy residential properties to fix them up and flip them for a profit or buy them to rent them out for consistent cash flow. You can buy properties to rent as vacation properties. And you can buy commercial properties to lease them for a continuing flow of cash.
Second, know the real estate market and find an ideal location where property values will rise.
Third, evaluate potential lenders. Understand their lending requirements. Find a lender and the lender’s products that will be just right for you and your investment property down payments.
Fourth, before even starting to look for an investment property, get pre-approved for financing.
Fifth, qualify as a “strong borrower” with a solid credit history and rating.
Seek Expert Financing Assistance
Contact CapitalAx Commercial Lending, based in Lubbock, TX to get the financing you need to establish and grow your real estate investing business. We offer a wide range of commercial finance programs to help you achieve your goals.