Purchasing investment property with 15% down payment has become an increasingly popular way for investors to generate rental income. However, there are several key factors to consider before taking this route. This article will provide an overview of investment properties, financing options with 15% down, tax implications, and risks associated with lower down payments. Proper planning and due diligence are crucial when leveraging investment property to build wealth over the long-term. With the right approach, real estate can be a viable path to diversify your holdings.
Investment properties can generate rental income but have higher financing costs than primary residences with 15% down
Investment properties refer to real estate purchased to generate rental income, earn from future resales, or both. They are not used as primary residences. With only 15% down, financing costs are higher compared to primary home loans. Investment property mortgages typically require minimum 20% down payment and strong credit scores. Lower down payments lead to higher interest rates, mortgage insurance costs, and stricter lending criteria. However, 15% down investment loans are still attainable for eligible buyers. Working with an experienced lender familiar with investment financing can help navigate options.
15% down investment properties have higher tax obligations than primary residences
Investment properties have key tax implications. Rental income must be reported to the IRS, with allowable expenses deducted. Upon sale, capital gains in excess of $250k/$500k for individuals/married couples must be reported. This is lower than the investment property capital gains threshold. Being aware of higher ongoing taxes and sale capital gains can help buyers model costs during holding periods and upon disposition.
Lower down payments increase risks if property values decline
With less equity invested upfront, 15% down buyers face higher exposure if the market downturns and property values decrease. This can lead to being underwater on the mortgage, having difficulties selling, and magnified losses. Conservative underwriting, healthy reserves, and choosing properties with strong fundamentals are key to mitigate risks. Proper insurance is also essential.
Investment property can build long-term wealth but requires diligent planning
If purchased wisely with eyes wide open, investment real estate leveraged at 15% down can generate wealth through rising property values and rental income. However, buyers must enter informed of the higher costs, tax considerations, and risks versus primary homeownership. Creating detailed budgets and forecasts, ensuring stable jobs and incomes, and working closely with real estate and legal professionals is vital for success.
Investment property purchases with 15% down allow investors to use leverage to increase potential returns. However, appropriate due diligence on the increased costs and risks is required. With the right property, financing, and understanding of the tax implications, real estate investing can build wealth over time.