Buying a multifamily or a commercial property with investment property financing is a good option if you are aware of the possible pitfalls in this type of investment. Generally people that find themselves in difficulty after this type of a purchase simply did not understand the possible issues that can arise when you make this type of investment.
By learning as much as you can about investment property financing and the possible issues you can encounter you can manage your finances and plan proactively to prevent any difficulties or problems. Often the biggest issue is in investing too much of the money into the structure without leaving adequate funds in reserve.
The Price
When you are applying for investment property financing it is important to keep in mind that the lender wants to minimize their risk to the greatest extent possible. They will not lend on a property that is over current market value and, depending on the specific type of property they are only going to provide funding to a percentage of the total price.
In turn this can also impact the interest rate and the terms of the loans that you are offered. Having several options to consider will give you a good overall picture of your choices.
The Use
Some types of investment property financing, such as that for apartment buildings, is considered more favorable since vacancies are not as common of a cash flow problem. The same is not true for all commercial buildings, especially specialized buildings such as gas stations, medical facilities or manufacturing types of buildings that are really only appropriate for one type of industry.
Capital on Hand
Other issues that can come into consideration with investment property financing include the amount of reserve that you need to have on hand to either rent the building or to provide required improvements. This information will be provided to the lender through appraisals, which are typically required as part of the financing application.
It is also a good idea to look for pre-approval on all your investment property financing. This not only allows you to know just how much money you have to work with but it also helps you to determine if the property is a good investment given the amount that you will have to come up with independent of that provided by the lender.
