When purchasing an investment property, it may be necessary to borrow money to complete the transaction. But before you head off to the bank, there are a few things you should know.
Just like any other major purchase, shop around for your best deal. That means checking on interest rates, points, and customer service scores of the various banks. Weighing them to fit what you need will matter. Such as high interest rates eat into your profits, so you are going to want to look for the lowest rate possible. If you find yourself in the position of choosing between two locations with the same interest rate, check into amenities like customer service. Good customer service for the same price is a wonderful benefit, especially if there is a problem later down the road.
Once you find a few banks you would like to approach, you are going to need to set up an appointment and bring a plan with you to show that you have seriously thought about what making an investment really means. The bank essentially becomes your business partner, so they are going to want to know a few things about you and the property to decide if you are a good gamble or not. Banks need to know: what are you borrowing money for, how much do you have down and how much are you borrowing, what your credit score is, how you plan to repay the loan, how long you need the loan for, if you have assets to use as collateral, and how you plan on making a return on the investment. While this is not as detailed as a full business plan, the more details you provide the more favorably the bank will look at your application.
Finally, before taking out the loan, you are going to need to know the tax laws for your area. Sometimes the interest on your loan is tax deductible, sometimes not. There are areas where the payments on an investment property are tax deductible and other times where they are not. Of course be sure to know exactly what local, state, or other property taxes may be involved in holding investment properties. Since being able to pay the taxes may impact how quickly the loan can be repaid.
