How to Buy an Investment Property

[Coty B Lunn]

There are several ways to buy an investment property, each with its own advantages and considerations. Here are some common methods:

1. Traditional Purchase:
   • Cash: Buying a property outright with cash provides a quick and straightforward transaction. This method eliminates the need for a mortgage and allows for a faster closing process.
   • Mortgage Financing: Most investors use a mortgage to finance their property purchases. This involves making a down payment. For a conventional loan, you will need to put at least 3% of the purchase price down if living in the residence. This loan may or may not include extra fees for closing costs, depending on the lender you choose. If purchasing a property strictly as an investment, you will need to put a minimum of 10% down for 1-4 family residences depending on the bank you use. Some banks will do 10% down and no private mortgage insurance (PMI). Not all lenders are created equal and choosing the right one can make or break a deal completely!
2. Creative Financing:
   • Seller Financing: In some cases, sellers may be willing to finance part or all of the purchase. The buyer makes payments directly to the seller instead of a traditional lender.
   • Subject-To Financing: This involves taking over the existing mortgage payments on the property, often without formally assuming the loan. It requires negotiating with the seller and may involve a higher level of risk.
3. Real Estate Partnerships:
   • Joint Ventures: Investors can partner with others to pool resources and share responsibilities. This can be beneficial for those with limited capital or expertise.
   • Limited Partnerships (LPs): In a LP, one partner has a more active role (the general partner) while others contribute capital as limited partners.
4. Seller Negotiation Strategies:
   • Discounted Purchase: Negotiating a lower purchase price based on factors like property condition, market conditions, or the seller's motivation.
   • Lease Options: Renting a property with an option to buy later. This allows the investor to control the property without an immediate purchase.
5. Government Programs:
   • FHA Loans: These loans, insured by the Federal Housing Administration, are popular among first-time homebuyers and can be used for investment properties with certain restrictions.  Great for someone looking to live in one apartment and rent out the others as it is only 3.5% of the purchase price as a down payment and often times closing costs can be rolled into the loan.
   • VA Loans: Veterans and active-duty military personnel may use VA loans to purchase investment properties. Great for veterans, because they can often time finance 100% of the purchase price on 1-4 families and even use seller concessions to pay for closing costs.
6. Wholesaling:
   • **Wholesaling involves contracting to buy a property and then selling the contract to another buyer before the closing. It requires finding deeply discounted properties and an investor willing to purchase the contract.
7. Real Estate Crowdfunding:
   • Online platforms: Investors can pool their funds with others to invest in larger real estate projects. This option provides an opportunity for diversification with smaller capital contributions.
8. Hard Money Loans:
   • Short-term financing: Hard money lenders provide loans based on the property's value rather than the borrower's creditworthiness. These loans typically have higher interest rates and shorter terms.

Each method comes with its own set of risks and benefits. The choice of how to buy an investment property depends on factors such as the investor's financial situation, risk tolerance, and investment goals. It's crucial to conduct thorough research and seek advice from real estate professionals or financial advisors before making a decision.