How To Finance an Investment Property

Buying an investment property is one of the most popular ways to build wealth. With

good reason too! Adding an investment property to your portfolio can create a new

income stream and provide diversification across a new asset class.


How To Finance an Investment Property
How To Finance an Investment Property

But, with record high prices and rising interest rates, financing an investment property

has become increasingly difficult. Despite these setbacks, it is not impossible and real

estate is still one of the best asset classes to invest in. So, in this article, we will be

discuss our top three tips to help you finance an investment property.


1. Have A Sizable Down Payment

In almost all cases, mortgage insurance will not cover loans for investment properties.

This means that you will need a down payment of at least 20% to 30% of the value of

the property. Most banks will not provide financing if your down payment is below 20%.

As a general rule of thumb, the larger of a down payment that you can put down, the

better. This is because:


1. A larger down payment (25%+) will often qualify you for a lower interest rate

2. A larger down payment increases your chances at getting approved for a loan

3. Putting down a larger down payment decreases your monthly mortgage payments,

therefore increasing your monthly profit margin


2. Improve Your Credit Profile

The next tip is to improve your credit profile. The best way to guarantee that your

mortgage application is approved and you get the lowest possible interest rate is to be a

strong borrower.


Having a strong borrower profile includes having a sizable downpayment, but it also

includes having a high credit score. You can check your credit score for free on

websites such as Credit Karma to check your credit score and get recommendations on

how to improve it.


Basic tips to improve your credit score include regularly making on-time payments,

limiting the amount you spend on credit cards, and watching how many open credit lines you have at any time.


3. Explore All of Your Borrowing Options

Depending on your goals and plans for your investment property, there are a wealth of

financing options for you to choose from. Some of your financing options include:


1. Conventional Loan/Bank Loan

When we say financing options, this is most likely what you think of. Similar to a

mortgage on your primary residence, you can take out a bank loan to finance your

investment property.


2. Fix-and-Flip Loans

As the name suggests, these loans are for investors who want to quickly purchase an

investment property, fix it, and flip it for a profit.


3. Use Your Home Equity

If you have significant equity in your primary residence or if you have another rental

property with significant equity, several financing options become available. Without

going in to too much detail here, you have the option to take out a HELOC, a home

equity loan, or do to a cash-out refinance.


Conclusion

Real Estate continues to be one of the best asset classes to add to your portfolio.

Whether you are looking for a new income stream or solid capital growth, an investment

property can provide both of those for you. Start with these tips and you will be a

property owner in no time!


Get in touch with us today! Call 540.825.8100 or email us at info@vhsmanagement.com to learn more about our property management services. For more updates and information from VHS Property Management follow our blog and find us on Facebook @vhsmanagement.

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