Investment Property Financing

Consider investment property financing before you even go to look at a property. The type of financing you want will dictate what properties you consider for purchasing.

Conventional Financing

Conventional bank loans for non-owner occupied investment properties require usually 20-30% of the purchase price as a down payment.

The way you take title to your investment property will have also dictate what banks and mortgage companies expect for down payments.

For instant, a while ago I was at my bank and I asked the bank manager what their requirements were if I purchased a small investment property under my LLC (Limited Liability Company).

I was told they would require 30% of the purchase price down. Plus they would also require a term length of 10 years. Not very flexible terms.

If I took title personally, the terms were much more favorable, lower down payment, lower interest rate and a longer term.

I just would have higher personal risk, because the title would have to be in my name. This means everything I own is at risk to lawsuits of every kind.

If you choose to live in the property after purchasing it, banks will require only 10% to 20% down. Usually the property must be a four family or less.

If you have 30% or more to invest as a down payment, then you can purchase most any property your lender of choice will loan on.

Large multi-family investment property financing is often financed through insurance companies. Your mortgage broker can help you arrange these.

Fannie Mae is also a source for multi-family investment property financing.

Investment Property Financing With Great Terms

If your goal is to purchase an investment property with flexible terms, you need to consider creative real estate investing techniques.

Robert G. Allen, author of "Nothing Down for the 2000s", writes in his best seller book, many creative financing techniques that you can use to purchase your property with "no money down".

No money down does not mean the seller doesn't get any money at closing, it just means you are able to 100% finance the property with OPM (other people's money).

Can it be done? Is it legitimate? The answer is yes. I have done it. More than once.

The biggest problem with 100% investment property financing is managing the negative cash flow, especially with small properties.

The key to flexible financing for your apartment building, is to find a flexible and motivated seller. Motivated sellers represent about 2% of all the properties on the market.

Motivated sellers are more interested in getting rid of their problem than receiving all cash for their property. Their problem may be foreclosure, divorce, problem tenants, negative cash flow, job transfer, etc. just to name a few.

If you can solve their problem, they will work with you to obtain your goals. Just make your deal win-win. Many motivated sellers get taken advantage of by unscrupulous buyers, the sharks if you will. Don't be one of them.

Since you need a motivated seller in order to get favorable investment property financing terms, you need to approach your property search differently.

I would recommend reading and following the suggestions in my article Getting Real Estate Leads.

You will learn how to get motivated sellers to contact you. You wouldn't need a real estate agent to help you find these properties.

If you do use a real estate agent, I would sign a buyer's agency agreement with him or her. That way, the real estate agent works for you, not the seller.

This agreement frees your agent to look for properties that meet your criteria that are not necessarily listed in MLS (multiple listing service). These can be the for sale by owner properties that are more likely to have a motivated seller.

When you master investment property financing, you are well on your way to creating wealth through real estate investing. What a great legitimate home based business you will have.

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