Financing Residential Investment Property

Are you ready to expand your real estate investing portfolio by entering the residential investment property market? Looking for financing a residential investment property is an essential step for any real estate investor and must be well considered. With so many different residential property options available, deciding which is best for your needs can take time. 

From leveraging debt to using private money, each option has factors that will impact how the process works and what you should consider when choosing a loan. We’ll provide an overview of some standard residential investment property layouts.

1. Apartments

Apartments are buildings with five or more units or complexes of multiple apartment buildings. The owner owns all land, buildings, individual units, and amenities. You will also hear these referred to as multi-family housing (usually multi-family 5+ units).

While we talk about these as residential property because of their occupancy type, depending on your municipal zoning codes, they may be classified as commercial property.

2. Condos

It can be 2+ unit buildings or complexes (so it includes multi-family and apartment-style structures). Condo units are owned individually, while the “landlord/property owner” owns the land, amenities, and building structure (usually everything from each unit’s exterior walls out). Sometimes condos have another classification and don’t fall under apartments or multi-family because some banks and private lenders will only lend if the borrower wholly owns the property. 

3. Mobile home (trailer) parks

These are parks for mobile homes that are not recreational vehicles. You may be looking to own in one of two ways: You own the lots, utility systems, and other park amenities while your tenants own their homes, or you own both the land and the homes. You may find private lenders willing to close just one type.

Although these parks are residential, they may be zoned commercially like apartments. This property is challenging to finance through banks, which often require high rates of regular tenancy, typically 80 percent.

4. Multi-family

Multi-family residences include duplexes, triplexes, and quadplexes and are generally easier to find financing for than apartments since they are nearly always classified as residential.

5. Single-family

A single-family home may be either attached or detached. The defining factor that separates single-family from multi-family is that each residence sits on its property lot, with its property lines.

Attached family homes are called townhomes, row houses, and zero-lot-line houses. The residence will either share walls or have one or more walls touching the neighbor’s home (essentially coming up to the edge of the property line).

6. Raw land

Undeveloped or raw land has no utility lines, roads, building structures, or pre-defined building sites. Raw land can be residential or commercial but is generally already zoned for one use. 

Finding lenders willing to close raw land transactions can take time and effort. There needs to be more assurance that the borrower can build the necessary infrastructure to develop the land without a great deal of added cost. 

7. Vacant land

It already has access to utilities and other improvements that make it somewhat development-ready. It is easier to find private loans for vacant land due to the increased assurance that all the necessary pieces – especially utilities – are easily accessible.

Conclusion

One of the smartest investments you can make is in residential investment property. It provides a solid investment return and can appreciate in value over time. There are several ways to finance your real estate investment, and each has its pros and cons. Work with a financial advisor to explore your options and choose the one that makes the most sense. The RE Investor News team specializes in helping investors find financing for their residential investment properties. Contact us today to get started!

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