Buying and owning rental property can have many long term benefits. But how you go about acquiring the property can make all the difference.
Before you get started: Determine your risk level
Your risk level is determined by your current situation and how you plan on buying the investment property.
- 1. Rent and Buy Investment
- This is where you rent your primary residence and buy investment property on the side. This is low risk as you are only tied to the property you buy and you have much more control over the cash flow based on your cash investment. Plus, it is the easiest to qualify for.
- 2. Moving Up (keeping old property as rental)
- As you build equity in your primary residence you can roll that into a new, better home. Meanwhile, keeping your old home as an investment property. This is not a bad habit to continue as you can control the liability on the investment by financing only what creates cash flow while you still live in the property. Plus each time you move up you can get owner occupied rates instead of investment rates.
- 3. 2-4 unit owner occupied
- You can buy investment property and live in it as well. A great option for to #1 where you would rather own instead of rent but still enjoy the cash flow from the other units to supplement your mortgage. Essentially having the same payment as if you rent, but other people pay the mortgage off. Also, because the property is technically owner occupied you will have easier qualifying, better rates and lower down payment programs available, like FHA.
- 4. Own and buy more
As you build equity in your primary residence you can trim off the excess and buy investment properties. This is higher risk as you are leveraging the down payment. Higher risk but with good long term benefits.
Financing
Get preapproved!! Knowing your purchase price can make the process much easier and give you more confidence when looking for property. Pre approvals can also strengthen your offer, helping you move to the front of the line when multiple offers are present.
There are many types of investment properties and practically just as many financing products. So, we will focus only on 1-4 unit, family dwelling financing. More than 4 units is considered commercial lending, covered in the Commercial Lending page.
Advantages to Residential Investment Financing
- Rates are much lower than commercial.
- Easier qualifying
Loan Types
- Minimum equity 80%
- Conventional Fannie and Freddie
- Private money
- Portfolio lender
