Investment Property Loans

 

You may find that applying for a mortgage is harder than it was first time around when you decide to purchase an investment property. However, there are a number of mortgage providers that will offer loans for investment property, so long as you bear a few important factors in mind.

When it comes to the down payment you should be prepared for the fact that many lenders will not give 100 percent loans, unless you are providing security for the loan. They could require a large down payment of around 30 percent of the total price of the investment property. However, if you do your research ahead of time, you should be able to find a lender that is a little more lenient and may offer 20 percent or less. You may even find some that offer 100 percent financing, although this can be a lot harder to be approved for.

The best option is to seek out a mortgage lender that specialize in loaning to finance investment property. These will have special plans available to you as they deal with people that want to invest in property all the time. They usually have special plans and features attached to their loans that are designed especially for property investors.

The features of loans for investment property are a little different to traditional mortgages. This can be a little daunting to new investors, but there are many options available to you as long as you are prepared to spend some time to research to find the best deals available to you.

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Evaluate Investment Property Price with Net Present Value (NPV)

Net present value is a property investing measure widely used by investors in an investment property analysis for a specific purpose: Net present value tells the investor whether a property will achieve his or her target rate of return and therefore should attract the investor's capital into that investment.

Here's the technical interpretation.

The net present value model is based on a decision rule that states if the discounted present value of future benefits is equal to or greater than the cost of those benefits it is a profitable opportunity. Whereas, if the present value of the future benefits is less than the cost for those benefits, the rate of return will not be achieved and chances are good that the investor should take another look.

When you place your money into a savings account you expect it to earn interest.The bank dictates the return and you are either willing or unwilling to tie up your capital based upon your acceptance of that return. For example, whereas you might deposit $10,000 to earn 3.8% interest, you might not make the investment to earn 1.2% interest.

But suppose that the bank doesn't quote an interest rate. Only what amount of money you'll be able to collect in the future. Only that next year you will collect $10,300 with a deposit of $10,000 today. If there were no mention of an interest rate, how would you know what yield your investment is earning?

That's the dilemma real estate investors face when analyzing income property. There's a projection for both an investment amount and future benefit, but there's no mention of yield. The investor has no idea what rate of return is achieved based upon that data alone, and therefore no way to compare it to other potential investment opportunities adequately.

This is where net present value comes in.

NPV lets you plug in a target yield for a property and then informs you whether the future benefits generated by that property will be enough to achieve that yield on your capital investment or not.

How It Works

NPV discounts all future cash flows by the desired rate of return to arrive at a present value of those future cash flows and deducts that amount from the initial equity. The result is a dollar amount that will always be either negative, zero, or positive.

How to Interpret

1) Negative dollar amount - This means that the present value of future benefits is less than the amount invested and that the specified rate of return is not met. In other words, you might want to move on to another property.

2) Zero dollar amount - This signifies that the present value of future benefits equals the amount of the investment and that the desired yield is perfectly met. In other words, the property will achieve the return you want but with no room to spare.

3) Positive dollar amount - This reveals that the desired rate of return is met with room to spare. In other words, you might have come across a keeper.

Net present value is certainly worth knowing, and when properly used can help you evaluate your next real estate investment opportunity. But bear in mind that it is just one aspect of real estate investing analysis, should not dictate an investment decision, and is not without its shortcomings.

NPV will provide you the opportunity to evaluate projects using the same rate of return requirements, but it will not provide any useful information concerning one project over another from a risk standpoint.

Cheap Property for Sale

Cheap property for sale is a great way to make long term capital gains but most investors make common mistakes and have know idea on how to turn the above into 30 – 100% profits or more.

The simple guidelines:

1. Look for fair value property

Don’t ever buy the cheapest property you can find, it’s cheap for a reason no one wants it.Instead look for property that is fairly priced and has solid reasons to rise in value.

2. NEVER BUY

If there are not solid reasons for the property to rise.You will get it cheaper, but you probably won’t make money.Pay a bit more and you will get better growth and lower risk

3. Buy a Bull market

When in many countries interest rates start to bite. Its getting harder to make money.So do what many foreign investors are doing, buy cheap property for sale overseas in countries that are close and stable.

4. Getting the big gains

For example making 30 – 100% gains in a market like the US on your investment capital is hard if not impossible in the current economic climate, however overseas not only can you buy property cheaper, you can get bigger gains.In effect you get more bang for your buck.

Costa Rica has been providing this for years and an example will illustrate this:

A property bought near the popular resort of Jaco Just 15 years ago for $30,000, is worth as much as 750,000 today and prices still continue to rise.There are however still some great cheap properties for sale on the Central Pacific coast that will show great gains.

5. Why will gains continue?

Quite simply beach front property is 70% less than in the southern USA and Americans are traveling just 3 hours south by direct flight to own their own slice of paradise at affordable cost.

6. Demand continues to rise and gains continue to be made.

Add in tax advantages, low property tax, the same rights as residents and one of the most stable countries in the world and you have a great way to make money in cheap property for sale.

So if you want more for your money and bigger gains head south to Costa Rica and you will discover what increasing numbers of foreign investors have.

7. A good booming location

Perhaps one of the best areas is the Central Pacific Coast which continues to expand buying near these expanding locations and infrastructure can be very lucrative.

The Analysis of Prices and Profitability for Property Investment

The economy is not doing well recently. However, the government is giving their best to improve it. But the economy is still in a bad shape because consumers' disbursal continues to decrease.

One of the affected market is the real estate market. Since the demand for buying properties is dropping, so is its market value. Because house prices are cheap, people think that it is a good time to buy investment properties. The real question lies on whether it is smart to invest on such property just because the prices are declining.

Investment properties are purchased and used for profit. One consideration in buying them is profitability. Getting one with a low price does not necessarily mean it can generate profits for you. You also have to think what activity you will be venturing on. Will it be selling or leasing? In addition, you have to consider what kind of investment properties to buy and which among them is popular.

Sell or Lease

You may have brought properties, rehabilitated it to increase its value and sell at a higher price. Although, they are more enticing because it comes with a good package, people would still prefer low-cost homes that could be obtained from pre-foreclosure, short sales and foreclosures. From there, they can practice their own buy and hold strategy. They can buy the house at a lower price and save much. Later on, when they have enough money, they can recondition it themselves.

You have good competition with cheaper offers in selling properties. And that could become a priority, unlessyour house is perfect in everything including the price.

Since there are many people who have been victims of foreclosure, they ought to rent a home instead.Leasing or renting may be quite advantageous. Besides, they cannot get mortgage easily and some needs time to rebuild credit. This is great opportunity for them. In addition, renting will always be lucrative since there is influx of immigrants and people on job-hunt. These people travel from one place to another before finding their niche. Because there are many of them, there is a large market for leasing and renting.

The kind of Investment Property

You can get either a residential or a commercial property. Smart investment would also mean you have to determine which property has more market during these times.

Residential properties are always needed. Although there is a decline in consumer spending, people will always find a way to have a home. It is a necessity and it doesn't even matter whether it is owned or rented.

Commercial properties like offices, warehouses and other retail properties have increasing vacancy rate. CBRE Econometric Advisors analyzed the market and they found out that office vacancy rate is 15.5 percent. National industrial vacancy rate is 13% and the retail vacancy rate is at 12%. This would clearly show there is low demand for these properties.

Conclusion

Above all, do you think it is the right time to buy investment properties? In terms of prices, yes it is. However, there are still other factors to consider. The mortgage, the interest rates, the marketability and assurance of cash flows.

Investment properties will used for business and in here, there is always risk. If you think that there is a window of opportunity for you to reap profits from your investment property, then this should be the perfect time to buy them.