Prerequisites to Securing an Investment Property Financing

Obviously there are essential facts and angles to consider before securing an investment property financing, especially when it involves commercial investment property financing. One need consider property financing that the conditions and rates are well  favorable.

The following factors are to be considered by any individual or group looking to acquire investments property  financing:

  • Good business plan and credit record: This is a good factor to consider before making plans to securing an investment property financing. An excellent business plan and clean credit record is a huge step to getting finance. This may not be considered in case of residential investment property financing.

  • Check the kind of property investment: Before taking a step to obtaining an investment property financing, one should consider the type of property that is in line with their interests and willingness to put much work into it. This factor is most considered when seeking for commercial investment property financing.

  • Have legible collateral: It is good to have good collateral, or have access to a good amount of down payment. This factor is most compulsory when seeking for property financing. Making pre-plan is very necessary.

  • Consider what the Investment property will be used for: This could be something to ponder on if no good plan is available. There should be a preset knowledge of what the property would be used for. For instance, part of the property could be utilized for a separate function or personal business; the property could be on rent for other businesses, and so on. So it is advisable to know what the property would be used for.

There are mainly two types of investment property financing alternatives. These are residential and commercial investment property  financing.

Differences between Residential Investment Property financing and Commercial Investment Properties Financing

These two alternatives have some similarities which include making use of the property as collateral for the financing of that property and so on. Though, many starters in property investments tend to consider going for residential investment property financing during the planning to buy investment properties. The fact is there are many differences between these two alternatives. The differences include the  following:

Before pursuing commercial investment property financing one must have a good credit record. This factor may not be looked into in case of securing a residential investment property  financing.

A lucrative business plan must be on ground before one can obtain commercial investment property financing. But this is not a requirement in residential investment property  financing.

Commercial property investment financing are more interested in the benefits and work input required to boost up the property to see the amount of cash that will be yielded. Many questions related to cash flows are tied to this. In residential investment property financing this does not create much  worry.

Residential investment property financing are used for holiday homes, family homes, and duplex apartments that may or may not be rented casually. Commercial investment property financing are used mainly for business  projects.

Residential investment property financing terms are much longer than that of the commercial investment property financing terms which might be between 5 and 20 years. The former stays longer because the property occupants will have to keep paying off mortgages for lengthier time than businesses would  do.

Types of Investment Property Financing

There are two types of investment property financing and these are bank financing and private  financing.

Private financing: This is another alternative available for property owners trying to get financing. This alternative offers a wide range of financing options that most banks do not offer. This type of financing can be of various types, such as, balloon mortgages, mortgage refinancing, fully amortizing mortgages, bridge financing, cash out refinancing,  etcetera.

Bank financing: Though, this is often difficult to obtain, but it is the most suitable for commercial real estate. Especially if the property is an office structure with grosses rent rolls and good cash flow, then the odds of getting financed will boost  up.

It should be noted that investment properties can be any type of property  that:

  • Is procured and utilized to propagate profit or gains.
  • Is not one’s main living apartment
  • Is purchased to leverage on some certain tax interest
All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.