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Home Ownership Preparation :: Investment Property Mortgages
Investment Property Mortgages:
How to Use Mortgages to Increase Your Investment Property Income
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Investment property mortgages are a great way to make money using leverage. And leverage is what you get when you use other people’s money to make purchases.
However, no matter what anyone says – it’s not always easy to get investment properties with no money down, despite what the infomercials say.
Buying any type of real estate, whether it’s a primary residence takes work, and almost always some form of down payment.
To learn how you can put investment property mortgages to work for you, keep reading.
Leverage Can Make You Money
Investment property mortgages basically allow you to purchase investment properties using other people’s money. In this case, the money comes in the form of a mortgage.
But how does it work? And can you really make money during these hard times?
Let’s say you find a home for $200,000. That amount shouldn’t be too hard to find a bank willing to lend you at least 80% of the purchase price.
That means you only need to come up with 20% of the purchase price or $40,000 for a cash down payment.
Now let’s imagine that home increases in value by 10%. So now, it’s worth $220,000 or $20,000 more than the original purchase price.
So, what kind of return do you think you’ll get if you sell that house for $220,000?
If your answer is 10%, that’s wrong. Remember you only put down $40,000 in cash. The bank put down the rest.
However, the bank has no claim on any profits you see from a real estate sale. So even though you invested only $40,000 you get to keep all the profits at a 40% return, minus any money you put into the house or other mortgage payments.
Obtaining Investment Property Mortgages
Real estate is one of the few assets that banks will actually leverage money for you to buy. That’s because real estate has three important characteristics.
It can produce income for the property owner. It offers tax advantages to the property owner. And it almost always grows in value.
Because of those three factors, most banks will lend you at least 80% of the purchase price. Some will even lend you 100% of the purchase price.
However, the days of no money down money may be behind us. Expect to have to put down at least five to 10% for any investment property mortgages.
Using Rent To Get A Larger Mortgage
If you own property, and you have a leased tenant, you can apply that income to your gross income.
That means you can use an existing tenant as a way of getting into investment properties that you may not otherwise be able to afford.
For example, you may not qualify for investment property mortgages over $400,000.
However, if you plan to purchase a property that has a tenant willing to stay and paying $2000 a month , that $2000 can be applied toward your gross income, meaning you can now afford the investment property.
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Home-Ownership-Preparation.com :: Investment Property Mortgages