Investing in property is one of the most reliable and consistent ways to build a solid income and a healthy financial future. While nothing is guaranteed in property investments, and there are certainly examples of failure, this has become one of the most trusted places to invest your money and build for the future.
When it comes to investing in property, there is no single correct way to do it. Investment property strategies come in many forms, and one advisor may favor one strategy, while another advisor favors a different approach.
With that in mind, here are some of the top investment property strategies that you might consider.
Top Investment Property Strategies
Note: San Diego Purchase Loans is not an investment firm or financial advisory service. This article is meant for general information and entertainment only, and should not be taken as financial advice of any type. Always consult a qualified professional before making any investment decisions.
Minimum Down Payment
One strategy that many people implement for their investment properties is to make a minimum down payment. In typical property purchases, it generally helps to have a large down payment, but with investment properties, having a lower down payment allows you to stay closer to the purchase of your next property. Yes, it will mean borrowing more money, but it could help expand your property portfolio at a faster rate. By building your portfolio of properties at a faster rate, you will be able to realize the profits of investment properties much sooner, and by the time you are ready to sell off your properties, you may have a larger, more lucrative collection of homes to place on the market.
Cash-Out Refinancing to Purchase Another Property
If you have been making mortgage payments on a property for many years, you have likely built a significant amount of equity. This ownership in your home is great, but it essentially means you have cash sitting in the house; cash that can’t be used unless you sell the property. This non-liquid money could hinder your investment strategy, but if you turn the equity into cash through cash-out refinancing, you can expand your investment portfolio. With cash-out refinancing, you can actually turn equity into cash, which can then be used towards the purchase of another property, once again expanding your property collection.
Cash-Out Refinancing to Eliminate Debts
Cash-out refinancing can be used for many different purposes, and while the purchase of a new property is a popular investment property strategy, it’s not the only use. Another use for the money that comes from cashing out your equity is to eliminate or consolidate other debts. Say you have tens of thousands of dollars in high-interest credit card debt that is ruining your investment profitability and harming your cash flow. By refinancing one of your properties and using the cash to pay off the debt, you can eliminate one of your biggest financial burdens.
Using Interest-Only ARM to Increase Cash Flow
In many cases, investment property strategies need to be focused on cash flow. There are many ways that you can increase the cash flow at your property, including using an interest-only adjustable-rate mortgage. This is a type of loan where you only pay the interest owed each month for a certain period. For a given time, you only pay interest, which means you have a period when your cash-flow will be enhanced. Interest-only periods can last around ten years, which gives you plenty of time to build a financial foothold that will be able to handle the higher payments once the interest-only period is over and you start paying on the balance as well as the interest.
Interest-only loans can have either fixed or adjustable rates, which means you will have options when choosing the right strategy for your needs.
Go with Extended Terms
While shorter mortgages allow you to pay off the home faster, it may be beneficial to extend the terms so your cash-flow is increased. For example, when purchasing a new property, you can go with a 30-year mortgage over a 15-year mortgage. The 30-year terms will mean that you have a lower monthly payment, freeing up your capital for other purposes, such as the purchase of another property. You could also refinance your loan to longer terms, which could be beneficial if your current investment-property loan is hampering your plans for future purchases.
Cash Flow on a 15-Year Amortization
Another strategy is to use the identification of properties that will cash-flow on a 15-year amortization which will equal income in retirement. This is a fairly common plan that many people use in preparation for retirement, but it can be beneficial no matter what stage of life you are in. Talk with a lender and a financial advisor for more information on this strategy.
Using the Benefits of an LLC
You can also use an LLC to enhance your overall investment strategy. With this plan, you will vest a property in the name of an LLC to legitimize a 1031 exchange with a property that was vested in the name of an LLC. Using LLC strategies allows you to take advantage of benefits that are designed for business owners.
You can also purchase a property and turn it into a short-term rental. There are loan programs available that will allow you to use income from AirBnB, VRBO, or HomeAway, as long as you have 12 months of verifiable financial information. This can be an excellent strategy for purchasing lucrative investment properties that can be marketed as vacation homes and short-term rentals.
Make the Right Loans Part of Your Property Investment Strategy
If you are interested in adding top-quality loans to your investment strategy, let San Diego Purchase Loans be your guide. We’ll help you choose the right loan for your needs, and we’ll make sure you have all the information required to make a fully informed decision.
“Chad and his team are exactly who you want handling the financing of your home. Whether it be a new purchase or refinance, he and his team are one of the most professional, responsive group of people I’ve worked with. Buying a home can be very stressful and Chad and his team took all of the necessary steps to make the process as painless and as quick as possible. They are extremely knowledgeable, organized and have great follow through. You won’t ever be left wondering what the next steps are. I highly recommend him and will use him in all of our real estate transactions moving forward.”
An ‘A’ Team!
We just closed on our second transaction with the Chad Baker team. They are very well organized and I can attest that they are looking out for their clients’ best needs. A special shout-out for Juliann B. who was our guide through the painful loan process. We found Juliann to be very responsive, kind, patient, and diligent in getting both our refis closed well.”
“We’re loving our new place and we’re very pleased with how smoothly everything went through closing. Thanks for keeping us up to date on the possibility of refinancing at a lower rate; we trust your judgement as far as waiting until the rate is around 5% lower before we refinance. We’re very interested in pursuing that if rates drop to that level. Thanks so much for all your help and personal attention!”