Investment Property Financing

In the current economic climate, attempting to obtain investment property financing can be like trying to look for a needle in a haystack. Whatever the size of the investment project you have, convincing the banks or other types of lenders to lend you money will highly likely not be that simple or straightforward. Perhaps several years back it may have been a lot more easier and the terms of any loan borrowed, much more relaxed. However in the current economic conditions, not only will you be required to put more money up front (as a deposit), but also the terms of the loans may also be a lot more tighter than before.

For instance, to acquire financing for a investment property you may be given by your bank higher rates, the processing fees may be more higher, your individual credit rating may need to be higher and so on. This all eventually adds up to a long and sometimes difficult process compared to previously.

One effective way of improving your chances of obtaining property financing, is by presenting a well-thought-out business plan to your potential lenders. To acquire financing for a investment property - which you may either want to sell on to other buyers after making improvments etc (in the future), or to rent out to tenants - a detailed and realistic business plan should improve your chances perhaps quite considerably in the eyes of a potential lender. What exactly does a good business plan need to have.

First of all, you need to work out exactly how much you will need to borrow. This can easily be derived from how much the property will cost to purchase, plus all the initial expenses necessary such as an estate agent's fees, lawyer's fee etc, and then minus the amount you are willing to put in from your own funds. Also, for whatever purpose you are purchasing the property for - either to rent out or sell on or any other reason - you will need to add any possible costs and expenses (for example, building or improvement costs etc) before you decide how much you will need to borrow.

In order to borrow finance from a lending institution and to pay them back over time, you will be needing to make a profit from your rental property investment. Again, this is pretty much straightforward to work out and present in your business plan. Basically, you need to add all your projected monthly expenses - including the mortgage and interest payments - plus any maintenance or building costs, insurance and taxes and other costs, and then deduct this whole amount from the final sale price or even rental income you expect to get. These will all be estimates of course so your research and judgement needs to be done carefully.

I should also mention that you may need to take into consideration other factors that may or may not influence future costs rising. This includes things like your interest payments, the value of your property may rise or fall over time, inflation and so on. Therefore, care needs to be taken when constructing a business plan for potential lenders.