Buying an Investment Property

What is Real Estate Investing?

Real estate investing is the practice of purchasing properties to make a profit. Unlike primary or secondary residences, investment properties are not lived in by the owner. Instead, they generate income through rent, future sales, or both. Investors may be drawn to real estate for its potential tax benefits and the chance to build an investment portfolio.

Investment properties can be long-term ventures or short-term projects like "house flipping," where a home is bought, renovated, and sold for profit. Whatever your strategy, real estate investors have unique needs compared to typical home buyers, so it's helpful to work with a lender who understands your goals.

Why Get an Investment Property Loan?

Investment property loans differ from traditional mortgages but offer unique benefits:

• Rental Income: Generate extra cash flow by renting to tenants.
• Increased Cash Flow: Offset expenses and potentially profit from your rental.
• Tax Benefits: Enjoy potential tax advantages like mortgage interest deductions.
• Portfolio Diversification: Expand your investment portfolio with real estate.

Types of Investment Properties

Vacation Properties

• Pros: High rental yields, personal use, rental services can cover mortgage.
• Cons: Expensive areas, frequent turnover, damage risk, off-season vacancy.

College Properties

• Pros: High demand, competitive rents, double duty if children attend nearby.
• Cons: Frequent turnover, damage risk, potential off-season vacancy.

Long-term Properties

• Pros: Steady tenants, low turnover, passive investment opportunity.
• Cons: Lower rents, maintenance responsibilities, reputation management.

Consider these factors when choosing your investment property type.

Real Estate Investing & Taxes

Investing in real estate can complicate your taxes. Here's what to expect:

• Capital Gains Tax: Applies if you sell a property owned for over a year. You can deduct real estate commission fees, but gains are taxed based on your income bracket.
• Short-Term Capital Gains Tax: Applies if you sell a property owned for less than a year. Profits are considered part of your yearly income.
• Rental Income Tax: Report rental income on your tax return. You can deduct certain expenses like repairs and maintenance.

Tips on Investment Property Loans

Ready to invest? Here's some advice:

• Large Down Payment: Traditional financing requires at least 15% down. Aim for 25% for better interest rates.
• Credit Score: A score below 740 may result in higher interest rates. Lenders want to see six months of personal and investment-related expenses available.
• Lending Options: Consider mortgage lenders like New American Funding for access to a wider range of loan products.
• Creative Financing: Explore alternatives like Home Equity Lines of Credit, life insurance policies, or Cash-Out Refinancing on your current home.

Real estate investing can be rewarding. Understanding the tax implications and financing options available can lead to a successful start. Contact an experienced loan officer to learn how a Cash-Out Refinance on your current home may help you buy an investment property. 

At New American Funding, we offer an unparalleled end-to-end New American Mortgage® experience. Our commitment goes beyond providing a loan; we genuinely care about you and are dedicated to helping you achieve the dream of homeownership.