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Smart Ways to Finance an Investment Property

Real Estate Investment Tips

Manage Your CreditGetting involved in a real estate investment is like any other type of investment. The risks are real, and the chance of loss can be significant. The rewards of real estate investments are generally reserved for the players who know the playing field and are willing to work hard to succeed.

Still, the possibility of buying a vacation home and renting it out to boost the value of your nest egg is attractive. As long as real estate investments are only a portion of your total investment strategy, you can earn profits, provided you do your homework and are prepared to work.

Foreclosure investing: An investment property primer

Foreclosure investing is the practice of buying foreclosed properties at less than market value and turning the property over for a profit. The profit potential of foreclosure investing is heavily front-loaded. You'll win or lose your chance at making money on the deal at the time of sale.

The trick of foreclosure investing is in accurately estimating the sale price that you can realize. Without a solid understanding of the local real estate market, you won't be able to re-sell the foreclosed property at your target price.

  • Study the Multiple Listing Service (MLS) used by real estate agents to get a feel for the local market.
  • Research the property for unpaid property taxes and liens or other hidden costs.
  • Establish a realistic sale price for the investment property.
  • Factor in the costs of financing, advertising and repairs.
  • Develop a clear, rational financing plan.

One more tip for foreclosure investing: Document your property research. Having solid numbers in hand will help you in your search for vacation-home financing. After the credit-market meltdown of 2008, lenders are much more leery of speculative real estate investors who merely transfer their debt from loan to loan. Showing your research goes a long way toward establishing your credibility in the eyes of lenders.

Real estate investment properties are statistically more likely to go into default, so lenders tend to be more cautious. An additional mortgage to buy a vacation home or other investment property will probably cost you more than a standard mortgage, and your credit history will be subject to greater scrutiny.

Added mortgages: Credit score pros and cons

Any time you take on additional debt, you lower your credit score. The good news is that, as you pay off your vacation home financing solution, your overall credit rating should improve (assuming you have no other issues with creditors).

The recent housing bubble taught lenders and borrowers alike a valuable lesson: Don't borrow or lend money expecting to recoup costs from a constantly booming housing, or any other, market. Another lesson to take from this calamity is that investment opportunities always carry a certain amount of risk.

It's always a wise decision to keep abreast of the state of your credit report and credit history, especially if you get involved in real estate or other investments. To stay informed about what's happening to the factors that affect your personal credit score daily, be sure to use credit monitoring and other tools that can help you stay on top of your finances.

 

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