Buying Income Property
By Richard A. Fishman

Investing in real estate has been one of the shining lights in our economy the last several years. As stocks have given either stagnant or dismal returns to most investors, more and more investors have been turning to the real estate market for their investments.

The world of real estate investing is as varied and fascinating as the world of stocks with one bold caveat. The expectation on returns cannot by nature be as fast as the cybertrader could manage in the boom years of 1998 through 1999. Real estate, by nature, is not as liquid. This means you cannot buy and sell it as fast as you can stocks or bonds.

If you interest in buying a real estate investment, you should be aware that it may not be a passive investment. You will have to put your attention on it as would any business you own. Even if you hire a management company to take care of the property, you will still need to oversee them and make sure the property and all decisions connected to it are being handled the way you want.

Here is a short list of the kind of Income Properties you can invest in. A passing reflection on the financing available for each kind of property is also included:

Single Family homes, duplexes, triplexes, and fourplexes are the most common form of real estate investments that people buy. These are the closest to what is familiar to us- namely our homes. Since most of us own our home, why not own another or a slightly bigger investment such as a two to four unit property. Many people buy a home and then simply keep it when they find they can afford a bigger one or move to another area. With the value of real estate going up, this can be an excellent way to increase personal wealth without taking too much risk. The downside is that homes and two to four unit properties can take up as much energy as bigger projects and may not give much in the way of cash flow- what's left after all the bills are paid.

Financing Single Family Homes or Two to Four Units: This is the easiest investment real estate to finance. RAF Mortgage offers up to 90% finance on these purchases. For those wanting to refinance and cash out their equity to buy another property, RAF Mortgage can finance up to 80% of the value of the property. Rates are typically a little higher than your owner occupied home loan, but that's a bargain for investment real estate loans.

Investing in Apartment Buildings is the next level up and one that people should take time in pondering before jumping in. An apartment building is considered anything that is more than 4 units. These buildings are not eligible for home loans like the one four unit properties and so fall into a totally separate category. There are many books that focus on about owning, managing, and finding apartment buildings, but the issues they cover are generally in two categories. The first issue is how do you buy and finance these properties. The second issue is how to manage them once you buy.

With regard to the first issue, purchasing apartment buildings, the first step is to develop a business plan for realizing your goals. If you already have made up your mind that you want to own an apartment building, you need to set your goals. What kind of area will you buy in? What kind of return on your money/investment is acceptable to you? How long is your investment horizon? To realize your goals you will probably need to work with a real estate broker who specializes in this type of investment. Go over your goals and make sure they are realistic!

To finance the apartment building you will need quite a bit more funds than buying a one to four unit property. Again, remember these are not home loans. RAF Mortgage has specialized in financing these types of investments since 1984. Typically you will need to put about 25% down. Loans are typically written for fifteen years with a 30 year amortization. Most investors take an adjustable rate loan with low start rates, but others take a fixed rate loan for five, seven or ten years. Rates are particularly attractive today and many apartment building owners have taken huge amounts of cash out to buy other properties.

Other Types of Investment Property

So many other types of investment real estate are available that I would be able to write a book, but I can categorize them into different categories. These are commercial properties such as office buildings and retail properties, industrial properties, land, hotels and motels, mini-storage facilities, and other specialty properties. Typically you will need to put about 35% down. For buildings that your business occupies, there are Small Business Administration loans that require less of a down payment. Loans are typically written for fifteen years with a 30 year amortization. These types of loans require a different kind of expertise than a traditional residential loan. RAF Mortgage has financed all of the above mentioned properties. If you need a quote on these types of properties call us today.

In summary, investing in real estate is a very broad and fascinating field. Do your homework and find out what you are ready for in terms of your personal commitment, capability and financial strength. Than call RAF Mortgage for more details on the programs we offer.

Return to Advice Index