What are investment property loans?

Investment property loans are loans that are given to an individual or to a real estate development company for the express purpose of developing real estate for sale on the marketplace. Although investment property loans can be more difficult to obtain than a run of the mill residential property loan, they actually come with many advantages.

The Advantages of Investment Property Loans

1. Investment property loans can be used for a wide variety of purposes. One of the worst attributes of residential real estate loans is that they can only be used for certain things such as the initial purchase of a house or an approved addition to a piece of real estate. Investment property loans can be used to improve upon a secondary home, create new commercial value for a home through rezoning or even be used to raze a house and build a new one on the same property. Because investment property loans are usually only given to recognizable business entities, loan officials are much less likely to peer over your shoulder if you get an investment property loan.
2. Investment property loans usually have a much longer term for payback. Because the property that is to be changed is the investment and not a residence, banks are much more likely to consider longer-term periods for investment properties because they are more likely to make a return on their money. Believe it or not, investment property loans are actually considered less risky in some financial circles than residential loans.
3. Investment property loans may come with a lower interest rate. Because banks consider professional investors much less risky than residential homeowners, they will not charge investors as much of a premium to borrow their money. This means less interest rates simply because of properties being used as an investment rather than a residential piece of real estate.
4. Investment property loans are usually much larger than residential loans. Because investment property loans are considered a business loan in most cases, the maximum amount of money that can be borrowed is much larger than in the case of a residential property. In the case of residential real estate, federal regulation actually limits the amount of money that can be borrowed. There is much less of this governmental oversight in the investment community.