Buying an investment property is easier than you think
/Investment properties can be a great way to grow your wealth. Whether you want to purchase an investment property for the first time or use equity in existing investment properties, this article will explore how you can use the equity from your primary residence to invest in another property.
This article will cover what an investment property is and different types of investments, buying an investment property for the first time, using equity in existing properties, combining income, and creating a diversified portfolio.
What is an investment property?
An investment property is a property that you purchase with the intention of earning a return on your investment. This can be done through renting the property out to tenants, or by using the property as a business.
There are two types of investment properties: residential and commercial.
Residential Investment Properties: A residential investment property is a home that you purchase to rent out to tenants. The majority of people who invest in residential properties do so for the purpose of generating income from rent payments.
Commercial Investment Properties: A commercial investment property is a building that you purchase with the intent of using it as a business venture. For example, purchasing an office building to use as your company headquarters would be considered a commercial investment property.
Buying an Investment Property for the First Time
There are a few things you need to take into account when buying an investment property for the first time. The most important factor is your ability to afford it. It is wise, but not a must, to have a healthy down payment saved up. You also need to be prepared to make the monthly mortgage payments. In addition, you will want to research different neighborhoods that would be a good fit for your investment property. You should also familiarize yourself with the current market conditions and expected rent rates in those areas.
How to use the equity from your primary residence to invest in another property
The most common way to use the equity in your primary residence to purchase another investment property is through a line of credit. A home equity line of credit (HELOC) allows you to borrow money against the value of your home. You can then take that loan and buy an investment property, using it as collateral for the HELOC.
When purchasing a home, most people need a down payment of 20% and take out a mortgage for 80%.
For example, let’s say your first home purchase is $200,000. You would likely have a mortgage for $160,000 if you invested a downpayment of $40,000. When you sell your home, the equity is calculated by subtracting what you owe on the mortgage from how much it's worth in today’s market. For example, if you sold your home for $232,000 after owning it for three years then your equity would be $232,000 minus whatever you owed on the mortgage. You can also use the proceeds from a home sale to purchase another property.
If you need some more information on using your home to buy an investment property you can find out more here.
Using Equity from Existing Properties And Combining Income Streams
If you already own one or more investment properties, you can use the equity from those properties to purchase another investment property. This can be done by taking out a loan against the equity or cashing out the equity through a sale. However, this should be done with caution. You want to make sure that you are not overextending yourself and have a solid plan for how the cash from your equity will be used.
If you have an investment property, you can also use the equity in that property to finance the purchase of a new investment property. Let's say you own an investment property that is worth $200,000 and you still owe $100,000 on the mortgage. You would have $100,000 of equity in your investment property. You can use the $100,000 to purchase another investment property and start building additional income streams.
One of the best things about investment properties is their diversity. Not only do they provide rental income, but if properly managed they can also generate capital gains over time as property values appreciate in value. Click here to learn more about whether you should buy an investment property.
