Real Estate

What’s the Average Interest Rate on an Investment Property?

Investment vehicles are a great way to grow your money, but which is the best fit for you and your needs? While some people choose to invest in stocks or bonds, others can’t help but invest in real estate, which offers them a monthly rental income in addition to the types of profits that can occur when the housing market increases in value. Of course, with the housing market soaring after a 2008 crash, many more people are looking to get in on property investing these days. From buying a vacation home that you can also rent out during the off-season to flipping houses to make them even more attractive to buyers, you have a lot of ways to make money with investment properties. Still, some factors make one investment property more attractive than another. One such detail to consider when looking for an investment property is the interest rate of the property itself. Here is what you need to know about investment property interest rates. 

For starters, one of the most common loans you’ll encounter when looking to borrow money for investment real estate is a conventional mortgage. Conventional mortgages will often offer you the lowest interest rates on the market. There has never been a better time to get into a conventional mortgage, thanks to the fact that many lenders are offering interest rates at around 3 or 4 percent for both 15-year and 30-year fixed loans. The internet makes it easy to compare investment property loan rates so that you get a great deal on your investment property. Being able to compare lenders and borrowing terms can ultimately result in your saving a few percentage points overall, allowing you to maximize your investment income from buying your property. But one drawback for investors is that a conventional loan generally requires about 20 percent down to avoid the cost of private mortgage insurance or PMI. While PMI may not be the end of the world if you’re planning on flipping a home quickly, if you’re looking for renters to provide you with reliable, repeatable income each and every month, it may be better to avoid spending money on PMI. 

If you’re looking to flip the house you’re investing in, you’ll likely have a wider range of loan options available to you. While it will be nice to have flexibility in where you’re getting income to finance your flip, you will likely end up paying more in interest. For example, if you’re looking to get multiple investment properties at the same time, you may be able to get something called a blanket mortgage which lumps several mortgages together. While this helps when it comes to paying one lender, interest rates generally range from 3 to 12 percent. Likewise, finding a private lender to give you the cash to finance a home purchase and flip can give you a lot of flexibility when it comes to the loan’s terms. however, these kinds of hard money loans often have the highest interest rates, ranging from 8 to 20 percent. Of course, this kind of monthly interest accrual is not going to be too much of a problem if you plan on flipping the home quickly. However, for longer projects or situations when unforeseen circumstances caused a flip to drag on, this can be particularly damaging to your bottom line. 

The location you choose when investing in real estate can also play a role in how you make a profit. For example, mountain homes and beach houses often have high appeal when the economy is doing well. However, when the economy is performing less well, having a more stable home near a city with job opportunities can be a much better investment. Regardless of wherever your investment property is, minimizing your interest rate is one of many ways to ensure that you have a good margin for profit. 

Keep the above facts in mind and compare several lenders before choosing the property and mortgage provider that you want. 

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