Monthly Archives: March 2015

What are Investment Properties and How to Use an Investment Property Calculator

Investment properties include:

Apartment Buildings – apartment properties are a great way for small and large investors to obtain investment properties. In today’s economy, many people are choosing to rent rather than purchase a home. The market for apartment building purchases is very strong and many investors are choosing to buy apartment buildings as investment properties.

Commercial Buildings – other common investment properties include office buildings, retail centers, warehouse and industrial properties and many other types of income producing properties. Some of these investment properties might contain multiple tenants while others might be single tenant properties. Some examples include an anchored retail shopping center, a medical office property, or a single tenant chain drugstore or fast food restaurant. Regardless of the property type, they all share one thing in common: the rents received from the tenants provides both return on investment and potential appreciation in value.

Single Family Homes – some investors choose to own multiple single family homes for rental purposes.  These investors often find that residential lenders have a maximum number of home loans that they will approve for one borrower.  It often makes sense to obtain one investment property loan to cover multiple investment properties.

Two to Four Unit Rental Homes – many home lenders will not lend on 2-4 unit rental homes that are owned by a partnership, corporation, LLC or trust.  An investment property lender understands these transactions and will be able to make an appropriate investment property loan.

How Much Can I Afford to Borrow?

An investment mortgage calculator is used to calculate the monthly payment on an investment property loan. The investment property calculator will require the following inputs: length of loan in years, loan amount and interest rate. The investment mortgage calculator will output the monthly payment to be paid. The monthly payment covers principal and interest only. Many lenders escrow for taxes, insurance and replacement reserves. If these escrows are required, you will need to add those amounts to the monthly payment in order to calculate the true monthly cost of your loan. Many borrowers find it helpful to use an investment mortgage calculator in advance of shopping for a property to get an idea as to what they can afford.

How to Shop for  an Investment Property

Before you begin shopping for an investment property, the first thing you should do is to obtain your credit scores. There are many sources on the Internet that will provide your credit scores for free. Lenders will base their credit decision partly on your credit score, so it is important to know up front if there any negative issues affecting your credit. The next thing you should do is to determine what type of property you would like to own. Would you rather own an apartment property or a commercial property? Would you prefer one tenant or multiple tenants? Next, you should determine your investment time horizon. Are you looking to own the property for a short-term before trading up, or are you looking to buy and hold for the long-term? The term of the loan that you request should match your investment time horizon.  After you determine the type of property that you are interested in, you should consult a competent realtor that specializes in those types of properties. Many residential brokers are not experienced when it comes to commercial real estate transactions. A commercial realtor will present several options for you to examine. It is important that you perform adequate due diligence and verify all of the income and expense projections which are presented to you. Once you have narrowed your decision down to one or two possible purchases, you should contact a competent investment mortgage lender that specializes in financing that type of property. Your mortgage lender will be able to help you analyze the investment property fundamentals and determine which investment property loan is appropriate for you. For more information please contact Select Commercial Funding LLC.