Most fledgling real estate investors who lack cash at hand typically would use the same financing options they used in acquiring their own homes for their investments. Through investment property loans, however, they can leverage more resources faster and expand their portfolio of properties and subsequent revenue streams in the short and long term.
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There are two basic types of investment property loans that share common advantages but apply to vastly different applications.
Residential investment property loans are reminiscent of mortgages and are similarly priced and are usually reserved for single-family and smaller multifamily rental properties. Its counterpart, commercial investment property loans, involve larger more substantial properties like larger apartments and malls, which are capable of handling more tenants at once.
The two types share between them the to include rental income as part of the declared income of an individual borrower; more established landlords, thus, have a greater chance of getting their loan applications approved because of their larger available income translating to better security on the part of the borrower.
There are key differences beyond just scope and scale. Commercial investment property loans also have the more stringent requirements, demanding landlord experience on top of financial requirements and credit standings to approve. Approval also requires a different take on the debt-to-income ratio, focusing not only on the ability of the borrower to capacity to back but also on how well the income reflects potential cash flow. Commercial investment property loans, therefore, should be left for more seasoned investors.
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