Tempted to purchase an investment property, here are 3 reasons why you should invest in real estate.
To begin, securing financing for an investment property requires a minimum of 20% down payment from your own resources. This means that your down payment cannot be gifted or borrowed.
Next, to qualify for a revenue property, you must be able to debt service your existing primary residence costs (ie. mortgage payments, property taxes, and heat) along with the payments of principal, interest, tax, and heat for the revenue property. Often, we can factor in a percentage of the potential rent collected to help one qualify however only a portion of it can be used. This portion varies with different Lenders and can range from an add back of 50% to 80% of the rent. Your mortgage broker can assist you in finding the best solution to help achieve your investment goals.
Also, many Lenders may stipulate that you meet a Net Worth requirement. Typically, this is 10% of the property value for each rental property valued up to $500,000 and $50,000 for each rental property valued at more than $500,000.
Rental income must be verified by providing one of the following:
Another thing to keep in mind is that Lenders often have limits on the number of doors they are willing to finance with them as well as with all Lenders. Many Lenders have their maximum set at four doors (including your primary residence) with them and others have a maximum of 4 – 11 doors allowed between them and all other Lenders.
Financing your investment property can occur in a couple different ways, depending on your end goals. Most real estate investors buy long term and the above information is if you are purchasing a rental. However, if you are considering a “flip”, your financing options are different.
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If you have questions about owing a rental property and different strategies to begin owning a revenue property or expanding your current portfolio we can begin to get you onto the right path. Some people are willing to turn their current home into a rental property and purchase another, some are able to save the require 20% down payment for a rental and others have different ﬁnancing idea’s. Let’s have a good discussion.