Financing for Investment Properties

Consider more aggressive financing choices for short-term investments. When financing an investment property that you intend to sell within five years of purchase, you should take a close look at "interest only" and "balloon" mortgage programs. The advantages with an interest only loan include no principle payments for a set term, which is generally around five years. With a balloon loan, you will make small principle payments in addition to interest payments each month. The risk faced with these programs is that the loans must be paid off in full at the end of the loan period, which is generally within five years from issue. This is a great way to lower the amount of cash coming out of your pocket, however it is important to realize the risk involved with these two loan types.

If you do not plan to live in an area for very long, it is a better idea to rent than to purchase. You do not incur the cost of trying to sell the property when you need to move, and you do not sink money into improvements that you don't actually benefit from.

Remember to include insurance when calculating the cost of a home. Do your research on the area a home is in before you commit to a purchase. A home with a lower price tag is not necessarily the better value, especially if that home is located in a flood plain, fault zone, or area prone to wildfires. You will pay more in the long run because of the increased cost to insure a risky home.