Tips for Investment Property Loans

See if financing an investment property makes sense for your situation

An investment property is any property - a house, an apartment building, a piece of land - that you purchase in order to earn a return on your money. Typically investment properties are not occupied by the owner. While buying real estate has historically been a solid investment, it's not a guaranteed one.

So, when debating whether to finance your first investment property, be prudent in your decision-making. Ask yourself these questions to determine how wise an investment this may be before you apply for investment property loans.

How long do you plan to own the investment property?

Whether it's a home, a ranch, apartment building or commercial structure, give some serious thought to how long you're prepared to own this property. For some time, experts have generally stipulated that it takes as many as seven years before the upfront costs associated with any mortgage, including investment property loans, begin to be defrayed. That means that if you're not prepared to own the property for at least that long, you may want to think twice before making the purchase.

How much can you afford?

When considering the purchase of a second property (in addition, presumably, to your primary residence), remember that lenders will consider your overall debt-to-income ratio in judging whether you're an appropriate risk. You'll need a down payment and will generally have to be able to meet monthly payments from your stable income stream, not projected rental income that may or may not materialize. That means anyone considering financing an investment property will need either a pool of savings or a healthy, stable income stream, or both.

Have you thoroughly vetted your first investment property?

Before buying any property, be sure you're well aware of the many factors that influence the property's value. This can help you avoid purchasing a property that has little promise of a good return. For starters, you should find out:

  • What kind of prices were paid recently for comparable properties in the immediate area?
  • Is the property in a flood zone or other problematic area?
  • How is the economy in that area? How are rental rates holding up?
  • Who would take care of this on a day-to-day basis (maintenance as well as dealing with tenants)?

Financing an investment property out of state

There are any number of reasons why an investor might become interested in buying property in another state. It might involve a location near family, a favorite urban area, on a coast, near the mountains or other attractive physical setting. But, if you're looking into investment property finance options in another state, be sure you're aware of extra steps in the process. They may include:

  • The need to budget for professional property management. Since you may be a significant distance away, you'll need to have someone you trust oversee the property, handle maintenance and work to fill vacancies promptly.
  • Legal and tax ramifications of living in one state and owning property in another. The necessary paperwork and the effects on your taxes will probably be notable, so make sure you work with an attorney or tax advisor to fully understand these factors before applying for investment property loans to make the purchase.

Learn more about financing an investment property from Citizens Bank

Whether you're most interested in investment property finance options or other personal real estate transactions, Citizens Bank offers a variety of mortgage options that may fit your needs. Choose from competitive rates on fixed, adjustable and jumbo mortgages. To get started, contact a Citizens Bank home loan originator at 1-888-514-2300.