Getting a loan for an investment property is one of the most important pieces of the entire process. If you get a bad deal on your loan, you’ll slice off a considerable amount of the profits you could get from the property.
We’re going to discuss a few different ways that you can improve the quality of your loan and wind up making a lot more money. Hopefully, the ideas below can shift up the idea of a conventional loan for investment property dealings and get you into an excellent position.
Let’s get started.
Table of Contents
1. Focus on The Downpayment
The downpayment is one of the most effective ways to adjust the rate you get as well as the expectations of your loan.
The bigger the downpayment, the sweeter the deal. That said, it’s tough to acquire a significant amount of cash in some cases. Our suggestion is to wait a little longer before you take out the loan if you don’t have a sizeable downpayment available.
You might have enough money to meet the investment property loans requirements, but that doesn’t mean you should always follow through. If you know that you’ll have a large sum of cash in the near future, it’s smart to wait it out and put that money down on the next property.
2. Refinance When Appropriate
You might not have the greatest credit when you’re starting out. That said, investing early is an important factor when it comes to generating significant wealth.
When the time comes, consider refinancing your loan and getting a better rate if your credit improves. When that happens, you’ll have the equity from the home in cash, and your loan will adjust to a new, preferable rate.
You might want to pour that money back into the investment it came from, but sometimes it’s a good idea to use those funds for new ventures. For example, you might want to use the equity from one investment to front a massive downpayment for a new one.
That way, you’ll get an excellent rate on the new mortgage, and your other loan will be less significant than it was before. Ideally, the profits coming in from renters of two properties will generate significantly higher revenue for you.
3. Consider Three Options
All of us say that we’re people who think through the options and make smart decisions when it comes to finances. That said, how many times have you been funneled into a loan or a financial obligation?
We’re looking for something in particular, we find a company that meets a lot of our criteria, and we follow through with the deal. That said, small differences in rates, fees, and general APR factors can make a huge difference over the life of the loan.
So, even if you find a great option, it’s always important to take a step back and look at other options as well. Note that any lender you qualify for wants to work with you because it’s going to make them money.
Lenders are selling to you, even though they’d make you think that they’re helping you out a great deal. That’s just the way things are. It’s a mutually beneficial situation.
They get the profit, and you get the finances for your investment. That said, you have to keep in mind that your loan is going to be sweeter if you get multiple options and leverage those options against each other.
You’d be surprised at how much lenders are willing to budge on their established rates.
4. Reduce Your Debts
The lower your existing debts are, the better credit you’ll have. That will make lenders a lot more willing to give you excellent deals.
It can be tough to cut down on existing debts more than you have to, though. It seems like acquiring new investments is the more profitable thing to do. That said, you’ll probably be better off cutting down on the debts that you owe.
The smaller they get, the less interest you’ll pay in the long run. Small chunks out of the principal value now could slice tens of thousands of dollars off of the life of your loan.
Plus, you have to factor in the money you’ll save on future loans when your credit is better. Reducing your debt to income ratio is something that will save you a massive amount of money over the course of your life. You might add an additional fifteen thousand dollars in interest to each loan you take out if you have a bad ratio.
So, it might hurt to play the waiting game and chip away at debts, but it’s worth it.
5. Invest to Flip
Another exciting possibility is flipping houses. If you have the capital to renovate, you can get exceptional deals on houses that pose a lot of potential rewards.
A house in disrepair will always be cheaper, but many houses are easy to renovate and hold the potential to be high-value rentals. After you renovate, your house will be as nice or nicer than one that requires a costly loan. You’ll have an excellent property with minimal monthly costs.
You can charge a high rent because the property is modern, but you’ll be paying the cost you would pay for a home that was hardly livable.
So long as you meet the rental loan criteria for specific companies and properties, there’s no limit on what you can do to renovate the house and increase your properties.
After all, you technically own the home even though it might be tied to the loan. So, boost your value on less valuable property and increase the rate of return that you acquire.
Are You Getting a Loan for An Investment Property?
If you’re interested in getting a loan for an investment property, there’s a lot more to learn. The process can be complex, but we’re here to help you with resources.
Explore our site for more information on investment property loan rates, investment property down payment, and whatever else you need.