Investment Property Financing

Once you have made your real estate investment purchase, long before the deal closes and while you're having the house and grounds fully inspected--termites, plumbing, electrical, structural, safety hazards--you need to get the promise of a mortgage, which is just another way of saying "loan." In the mortgage papers the banker agrees to lend you whatever part of the property price you don't have. Usually, the buyer (that's you) pays the seller a down payment which is commonly 20% of the sales price you both agreed to. Sometimes buyers give a larger down payment so that they will owe the bank less and save some interest. Still others put as small a down payment as possible because they want to use the rest of that money to renovate or decorate or to purchase yet another investment property. Those who put as little of their own money into their purchase are said to be using "other people's money," or OPM as it is called.

When looking for a lender it is best to go with a reputable company, not what is called a "fly-by-night" company. Try to avoid loners who will give a mortgage to almost anyone, regardless of their credit history. These lenders are often disreputable and charge exorbitant interest rates. Another piece of advice: don't mess with friends and family; keep your business to yourself.

Another way buyers finance their new properties is to use the proceeds from one of the properties they already own. If they've had the original property for some time, they may apply for an equity loan, which is also known as refinancing. If you're hoping to start your own little empire, this practice is something you might want to think about. If what you are purchasing now is truly an investment property rather than a home for personal use, it can be the beginning of a collection that you can either rent or flip. And chances are, if you and your banker are happy with one another, you'll get a lot of help and, possibly, a bit of preferential treatment.

And just think, maybe you can give up your day job, if you want to. Okay, owning and caring for a number of properties is also work, but of a different kind. And you'll be working for yourself.