An investment property is a real estate purchase made to generate income through rental income or appreciation and is not the investor's primary residence.
The three types of investment properties are:
- Residential: The most common form of investment property, these properties are purchased to be rented out to tenants and earn monthly income. These can include single-family homes, apartments, condominiums, or townhomes.
- Commercial: Properties purchased for business purposes, such as office space, retail stores, and restaurants. The investor may purchase an already existing property or develop from the ground up.
- Mixed-use: These properties can be used simultaneously for residential and commercial purposes. For instance, the ground level may be used for retail shops and the upper floors for residential units.
If you are looking to purchase an investment property without needing proof of personal income from tax returns or pay stubs, you may want to consider a Debt Service Coverage Ratio (DSCR) loan. A DSCR loan is a type of non-QM loan that uses the net income from the investment property to determine the ability to repay the loan.
The DSCR is calculated by taking the property’s net operating income and dividing it by the total debts and expenses incurred (including the principal and interest payments on a loan). For example, if you are looking to purchase a duplex with a net operating income of $20,000 and debt service of $14,500, the DSCR would be approximately 1.38. The larger the DSCR, the better for the borrower. Most lenders require DSCRs of at least 1.25. Down payments can be as low as with the right DSCR and credit score.
If you would like to learn more about purchasing an investment property with a DSCR loan, talk to the experts at a NASB at 888-661-1982 or click here for more information*.
*Not available in New York state, the Chicago or Baltimore metropolitan areas, and not available in all locations or for all property types. Loans subject to underwriting and eligibility criteria, and other factors. Your loan officer will provide you with more information regarding DSCR loans and what may work best for your situation.
