Whether you are thinking of investing in real estate or have plans to become a landlord, if you educate yourself with some property basics you will have a smooth navigation. Anyone who is thinking of such an investment has plans to buy a new house and rent it out for extra monthly income. It isn't as easy as it sounds. As opposed to traditional mortgages, investment property mortgages work a little different with stringent rules in place and higher down payments.
By now you may already be aware there are three types of investment property mortgages: commercial, residential, and mixed-use. Mortgages for investment property is different from getting one for your primary or secondary home (like vacation home). But before you even begin thinking of applying for an investment property mortgage it is imperative you know the advantages and disadvantages of what you are about to get into.
Advantages of investment property mortgage
Additional monthly income: If you decide on renting the property out, you get an assured monthly income which is over and above what you may already be earning. This takes care of any added expenditures too.
Tax deduction benefits: You can avail a tax break on some of the expenses related to an investment property. Some of these could be insurance, mortgage interest, maintenance, property taxes, upgrades, property management and maybe even some of the utility bills if they are counted in the rental price.
Losses may be deductible: While you certainly can claim expenses, deducting the losses you made is possible too. If the expenses you bear towards your investment property are greater than what you get as income from rent, you may just be able to deduct this loss from any other income that you have.
Disadvantages of investment property mortgage
Added responsibility: While buying an investment property is a great idea, renting it out comes with additional responsibilities. You need to deal with the tenants on a continuous basis, collect rent from them, send them reminders, and help them with any issue related to the property that may come up.
It is a costly affair: Buying an investment property is often more costly than investing in smaller things such as mutual funds, stocks, or shares. Though what your tenants pay you as rentals would be enough to cover the mortgage payments, you would still need to make a 20% down payment instantly. The condition of the property will also tell if you need to spend additional money apart from the down payment on things such as repairs or even upgrades in some cases.
Not A Liquid Asset: A rental property only gives you the rent as liquid money. If for some reason you want to sell it at a later date, it takes time. Selling costs will have to be paid too.
Looking for an investment property mortgage or have any doubts or concerns contact LendX Financial for all kinds of assistance.
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