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An investment property loan is a sum of money borrowed specifically for the purpose of buying or improving real estate intended to be an investment. The main reason why someone would take out an investment property loan is that a return is expected at some point in the future. An investment loan can improve the value of a property, making it worth more on the market.
Investment property loans come in one of two forms. Commercial property loans are used for the purpose of buying and improving the conditions of a commercial building or property. Residential investment property loans are strictly used for home purchases, repairs, or rehabilitation to make a home livable again. Of the two, generally commercial property loans are made for higher amounts.
Many real estate investors, particularly those who want to invest in a large commercial property, may loan a portion of the total value of a property as part of a network of investors. Once all the capital is pooled together by the network of investors, the purchase can be accomplished collectively. In addition, improvements can be made to the property so that it can be leased out or sold for a profit, with all investors benefiting based on a percentage of the share.
An investment property loan can be obtained in a variety of ways and forms. Investment loans may be provided by banking institutions, mortgage brokers or private investment firms. Loans can be for small or large sums, depending on the individual needs of the investor. In addition, an investment property loan can be obtained for short-term or long-term plans with variable or fixed interest rates included.
The key to proper management of investment property loans is making sure that the loan repayment doesn’t exceed the return made by the investment. Once the loan terms are established, it's generally wise to process the purchase of the property and make repairs quickly. This effort will produce a high return on investment which will create funds that can pay the loan off quickly without incurring high interest fees or lengthening the repayment time of the investment property loan.
Investment property loans are sometimes used to pay for short-term property responsibilities of commercial property owners, such as property taxes or emergency repairs. Fees charged by regional tax divisions can vary depending on the conditions of the building and the size of the property. Sometimes, tax rates and repair costs exceed the income produced by the property therefore a loan must be obtained to pay the difference.