An investment loan is just another term for any loan used to finance the purchase of an investment property. Generally, investment loans tend to fall into one of two categories. Either they are put toward a fix-and-flip strategy, where a property is fixed up and then sold quickly for a profit, or they are put toward a buy-and-hold strategy, where the property is meant to be rented out and kept in the Investor’s portfolio long-term.
An investment loan can be put toward any type of real estate investing, whether it’s commercial real estate or residential. However, these loans typically cannot be put toward the purchase of a primary residence. Notably, since you will not be living in the property you purchase, these loans are considered a higher risk. As such, they often come with stricter qualifying requirements than a simple home loan.
Types of loans are available to property investors
Best practices for first-time investors
All you need to know
We tend to think of debt as something to be avoided or paid off as quickly as possible. But there are times when taking out an investment loan can be a strategy to increase wealth. Borrowing money to buy investments is a good example. And despite its fancy name, “leveraged investing” it is a strategy that can benefit many different types of investors, not just the wealthy.
Leveraged investing via investment loans is quite a simple concept:
- You borrow a lump sum
- You invest the money
- You pay interest on the loan
- You keep any investment growth
There are many reasons to invest in real estate. It can be a hedge against market volatility when stocks take a tumble, and there are also many perks associated with owning an investment property.
Becoming a landlord may be a smart way to generate a steady passive income stream, but it does take a certain amount of cash to get started. And when you don’t have a huge bankroll, taking out an investment property loan may be the only way to seal the deal.