Real estate investment involves the purchasing, holding, possession, control, rental or sale of certain real property for profit. Creation of real property as a part of an investment plan is generally viewed as a separate sub-specialty of commercial real estate investment known as commercial real estate investment. The process of investment property is not a simple one as it requires thorough market research, financial planning and a comprehensive evaluation before making any investment decision. In fact, without the necessary investment tools and systematic planning, one cannot expect to make any profit from investment property. In order to successfully invest in property, you need to understand the basic principles of the investment business.
Primary residence: While investment properties may include residential property or other non-housing assets, primary residence is one of the most important categories of such properties. It is necessary to check the laws of the area in which the investment property is located regarding ownership of a primary residence. The laws will vary from state to state investment property and country to country.
Commercial real estate: Commercial real estate involves any real property that deals with the exchange of goods and services and/or the production of products. These may include retail shops, office complexes, malls, industrial estates, etc. The main advantage of buying commercial real estate is that the property can be used as a single-family home. One of the easiest ways to invest in commercial real estate is through a home loan or home equity loans. These can be secured or unsecured depending upon the borrower’s financial situation.
Business loans: Business loans are typically secured with assets like stock certificates. Unlike primary residence, business loans can be used for any purpose including expansion of existing business or purchasing new ones. Businesses are also able to avail capital advances at lower interest rates and longer repayment periods. However, these loans are not advisable for first time investors because it requires larger down payments and relatively longer repayment periods. The financing investment properties for businesses are usually best sourced through business partner relationships.
Rental income: Real estate investments like rental homes, commercial buildings, villas, etc. generate rental income. This income can be channeled either into your own business or into the hands of other investors. For investors who plan on putting their personal money into rental income, it is important to remember that the rental income must have a fixed rate. To minimize risks of losing money on an investment property, it is advisable to seek home loan refinancing from time to time.
Cash flow: When an investor handles cash flow wisely, he ensures that he earns the highest returns. Cash flow on investment property is basically the difference between total income earned by the property and the total expenses incurred to maintain it. Good cash flow means property owners are able to pay off their mortgages and maintenance quickly. Good cash flow can also mean property owners avoid borrowing more than they can afford.
Refinance Mortgage: For borrowers who intend to buy investment property with a single family mortgage, a refinance mortgage can be a good option. With this kind of mortgage, the mortgage payment is split between the investment property and the primary residence. Although this type of mortgage costs more than a traditional second home mortgage, the income earned on the primary residence may be sufficient to cover the monthly mortgage payment. The downside is that refinancing often involves paying higher interest rates compared to conventional mortgages. For borrowers who own a multiple unit property with a single family mortgage, a second mortgage may be an excellent option.
Minimum Credit Score Mortgage: For investors who do not own their primary residence, a minimum credit score mortgage may be an excellent option. This form of financing requires a borrower to own a property with at least a 20% down payment. A minimum credit score mortgage is ideal for borrowers who do not own their primary residence and those who are interested in leveraging their investment property. Although these mortgages typically require slightly higher interest rates than other forms of conventional financing, they have the potential to save a borrower thousands of dollars per year compared to conventional financing.