Investment property financing is a topic that many new investors do not know where to begin to learn. The first principle to consider in any type of financing though is to understand some basics. For example, what is the loan amount that you’re financing, how long of a term do you want or can get, what is the interest rate, and what are the fees to close the loan.

One other thing to consider in investment property financing is when I need to make the first payment. This is actually true for primary residence ownership as well as investment properties. However, with investment properties, you can almost stretch out a free month of income before paying your first mortgage payment.

Now to some more important issues related to investment financing. These days, it’s very difficult to get lenders to fund investment properties. They used to take all kinds of borrowers with “stated income”, some even with 5 percent down payment. Today, with the financial meltdown, these are impossible loans to get. So, you need to make sure that you have adequate credit, a sizable down payment, generally 30% is required, but there are some exceptions, and an income statement that makes sense to the lender.

What does an income statement mean in this example? It means the rent that you will be getting from the tenant minus the expenses. Expenses include: mortgage, interest, property taxes and insurance, as well as maintenance, association dues, any required fire sprinkler systems, etc.

Now investment property financing is less rigorous for single family homes than they are for apartment financing or office building financing. In a single family home, it’s almost like getting a regular owner occupied home financing, BUT the key difference is the loan rate is generally higher by about 1 percentage point.

In apartment and office building financing, the lenders really want to know the income stream from the property. So, they consider the income generated from the building minus the expenses to run the building. Lesser importance is put on the actual credit rating of the borrower. Although these days the lenders are scrutinizing those as well.

All investment property financing is contingent on an appraisal. With a single family home, the appraisals are similar to the owner occupied appraisals, with the added review of rental comparables. Rental comparables mean that they look at other homes in the area to see what they are renting for. In this way, the lenders can determine whether you will be in right ball park for income.

With apartment and office building appraisals, sometimes the lender will also want an environmental report. What this report tells the lender is if there are any waste hazards that they need to consider when making the loan. Waste hazards could cause liability issues for the owner and thus the lender, as well as bring the overall value of the property down.

In addition to the additional review for investment property financing, in some cases the loan term is different than a regular owner occupied home. With apartment or office building financing, the term could be as short as 5 years. What that means is that the borrower must end up refinancing again in 5 years. Not a great thing, but one that is a fact of the industry.

Financing investment property does not have to be difficult, it just different and requires a slightly different view of paperwork.

Real Estate ownership title is a very key component to holding any type of real estate. It is even more important when you own investment real estate. When many people buy investment property, whether it is a single family home, commercial building or apartment building, they don’t always think about how to hold title. Oftentimes, owners are overjoyed to have bought their first investment property and end up holding title as tenants in common, partnership or sole owner.

However, there are many problems that can arise when holding investment property, not the least of which is being sued. The real estate ownership title is one of the most important things to worry about if you plan to buy investment property. The biggest reason for this is the owner’s liability.

Let’s take a real life example if a tenant slips, falls and gets injured on your property. Now, many might think that liability insurance would cover that kind of problem. In most cases, IF you have enough liability limit to cover that type of injury. But, let’s say you don’t have enough liability coverage AND someone finds that a crack in the floor had not been properly sealed before the tenant moved in. This could be considered negligence and you could be open to a lawsuit.

If the ownership title was set up as joint tenancy, say with your wife or business partner, you could be opening up your personal assets to a lawsuit. We live in a litigious society where everyone in America believes it’s ok to sue everybody and their brother and sister. Don’t think that the happy tenant that signed the one year lease won’t sue you and try to attach other personal assets as well.

So, how do you protect yourself from this type of unfortunate situation from getting out of hand? Many real estate investment owners form separation corporations for each of their properties. In fact, creating separate Limited Liability Corporations (LLC) to “hold” a property is both simple and cheap enough to warrant doing. Holding each property in a separate LLC, at least gives property owners a shield to protect each separate property as well as one’s personal assets.

A property’s ownership title is then put in the name of the LLC. Within the LLC, you name the owners or shareholders. It could be as simple as one person or a number of co-owners of the property. If a tenant wants to sue you, he or she would first have to “find” you as one of the owners and, if they are successful, then pierce the “corporate veil”, which is not an easy task to do.

Surely, going after a property owner who has not put their real estate investment in a corporation will be a much easier target to sue than one who has. During these tough economic times, ensuring that you have enough protection as possible is a very prudent idea. There have been cases of tenants suing landlords just because the water from the spout came out too hot and scalded them. Or, another case, where an elderly woman sued a landlord for touching her hand, calling it sexual harassment.

These types of cases may be thrown out of court. But, in some tenant friendly cities, every case has the possibility of creating a problem for the landlord. Real estate investment property ownership title is best put into some type of corporation. It is so easy and cheap to create an LLC that the setup of one should be a no brainer.

What is a short sale? It’s an agreed upon price that the bank will accept from a strapped homeowner who cannot sell his / her home. The price is negotiated on a number of factors. One is the ability or inability of the homeowner to make their monthly mortgage. In the case of impound accounts that includes property tax payments and insurance. Second, is the hardship that the homeowner can demonstrate? In other words, was the homeowner laid off or making less than the actual amount of the payments? Third, what is the property really worth? For example, if the loan amount is $300,000 and the property will only sell for $200,000, will the bank be willing to write off $100,000?

There are certainly many other factors that the bank will look at. In fact, they generally won’t even talk to you unless you’ve been delinquent in your payments for at least 3 months. In many cases, they won’t talk to you unless you’re six months behind. One of the reasons is that they are overwhelmed with cases and other reasons include the fact that they just don’t have enough qualified people who understand the process.

But, the real dilemma arises from the fact that while the potential new buyer makes out like a bandit, the current homeowner could well be short-changed. Think about how the current homeowner got into the situation initially. First of all, he / she was sold a property at values that far exceeded what they were really worth. Second, the broker / agent / lender likely sold them a bill of goods and should not have financed them in the first place.

Here, you have a situation where the current homeowner is living or renting out a property that is WAY upside down … value is far less than what anyone would pay for it. Their mortgage is higher than what the property is worth. And, they cannot make the payments. Short changed does not even come close to describing the real situation.

Not only does the homeowner lose their home, they’ve also ruined their credit. A short sale is typically not as bad as a full foreclosure or bankruptcy, but it could very well reduce your credit score by between 50 and 100 points. Try getting another loan to buy another home with THAT on your credit. This is exacerbated by the fact that lenders don’t want to lend any more money.

Complicating matter is that a borrower really should work with agents / brokers who know how to negotiate with lenders on a short sale. These types of agents, though, are incredibly hard to find. Over the last 10 years, practically everyone was working on LONG sales. In other words, sales that assumed appreciation, not depreciation.

Worse, the lenders themselves are not prepared for the onslaught. A lot of lip service has been given to helping homeowners stay in their home, but nothing has been done to help the homeowner save his / her credit. And, what about the poor “investor” who got into deals “pushed” by shady real estate agents. These poor folks are even more messed up. The government and the general, in public, wants to wash their hands of them.

A short sale may be good for the new buyer, but in the end it’s a lose / lose for the lender and the original borrower.

All good things carry with them some degree of risk. The same holds true with investment rental properties. Despite the promise of high rewards you should temper those ambitions with the reality that the risks involved are more often than not just as high as the potential rewards. For this reason you need to take every possible precaution in order to insure that you minimize your exposure to risk whenever possible or at the very least are prepared, financially and mentally to accept the consequences of those risks if the time comes.

The most obvious risk when it comes to real estate investing is the immediate risk of losing your investment. This risk can be a huge blow depending on how large your investment was to begin with but isn’t the worst thing that can happen during the course of a real estate investment gone wrong. While I’m certainly not trying to talk you out of investing in real estate all together it is a good idea to have a realistic view of the risks and the potential rewards.

If your real estate investing is not in rental properties but rather it is in flipping houses, you have the potential to loose a little more as you can become injured during the course of your work. The sad truth is that many who are attempting to break into the business of flipping houses have neither adequate insurance coverage (this is true of themselves and the property in general and others that may be working on the property), the money, nor the time that a serious injury might require.

Another risk common to real estate investing is the fact that stuff happens. Market trends tumble, companies go out of business leaving towns and the local real estate market in shambles, accidents happen during the course of the work, natural disasters occur, and buyers change their minds and pull out at the last minute. Each of these things can have devastating consequences and are almost always events that are completely beyond your control as a real estate investor.

If that wasn’t enough many investors fail to have a proper inspection and find out when it is really too late that there are serious structural problems and other sorts of things wrong with the property. These things cost money to repair and cut into profits, occasionally resulting in a loss. The thing is that once you find out something is wrong with the property you are honor bound to either reveal the problem to potential buyers or fix the problems before selling the house. In the case of a flip, many major problems will undo the work that has already be done. If this doesn’t remind you of the importance of a thorough inspection I have no idea exactly what will but inspections are important for many reasons and can save a lot of time and money if you have one done ahead of time.

Do not allow the risks of real estate investing prevent you from taking the plunge. They are spelled out here to remind you that prudence and caution are wise when investing in real estate not to talk you out of this potentially lucrative field of investing. If you are interested in real estate investing there is no reason on earth you shouldn’t take the time and make the effort to learn more about its potential.

In his book “The Real Book of Real Estate,” Robert Kiyosaki tries to give you a blueprint as to how to do the “business” of real estate. In other words, many people don’t think of real estate as a business. A lot of people, in fact, bought real estate as casually as they bought cars or jewelry. The problem with this attitude is that there is a whole lot more money to be lost when buying real estate incorrectly. So, “The Real Book of Real Estate,” by Robert Kiyosaki goes about to help one understand the right way to buy, hold, maintain and protect your real estate investments.

Some of the things that Robert Kiyosaki discusses in “The Real Book of Real Estate,” include for example how to start from the ground up. Don’t try to rush into a purchase because it’s hot. Do the math, start slow, and build the wealth momentum. One of the other principles of “The Real Book of Real Estate,” is to really understand the finance of real estate. It’s not good enough that it’s in a great location or it’s a nice house. Do the numbers bear out over a certain period of time? Robert Kiyosaki would assert that this is the key to real estate investing

In fact, due diligence is the key phrase when buying into real estate. “The Real Book of Real Estate,” will tell you that you need to look at every aspect of the buying scenario. Robert Kiyosaki will assert how much do you have at risk, what are the returns, what does the neighborhood look like and more. In the book, discussions are also around how to protect these assets. Because guess what? You have them and somebody else will want them too.

“The Real Book of Real Estate” will also teach you that owning property is not all roses and perfume. What happens when something breaks or the tenant doesn’t pay? Robert Kiyosaki will tell you that the property management portion of owning real estate is what will turn off investors in a heartbeat. I mean who wants to get up at 2am when a tenant calls to tell you that the pipe is leaking? Who wants to shell out $15,000 to buy a new roof?

All of this is great information. “The Real Book of Real Estate” is a great foundation for learning about the Business of owning real estate. And, this is probably where most investors got stuck before. They didn’t think about the investment as a business.

There have been many systems and authors who have written about multiple streams of income. But, what do they mean when they say multiple streams of income? Does it have to do with fishing for income? Or, are they referring to the way people can make money in many different ways? If what these authors say is true, why isn’t everybody rich, happy, and retired?

One of the most famous people who wrote about multiple streams of income is Robert Allen. He wrote this book almost ten years ago, after other successful New York Times Bestsellers. In his book, Robert Allen tells you basically how to retire with the multiple streams of income that you will create. These income sources come from the stock market, real estate investing, foreclosure purchases, buying tax liens, and a whole lot more.

Robert Allen’s Multiple Streams of Income is fascinating reading because it basically opens your eyes to the possibilities. Before reading this book, I think that most people had little idea that there is a whole other world of making money than grinding out a 9 to 5 job. Those types of jobs are geared for people who don’t want any risk in life. And, yes, the age old adage of “no risk, no reward” is clearly true. It’s especially true if you are exploring new areas of making money.

Now, Robert Allen’s version of multiple streams of income is not necessarily new. There are a number of authors who write about multiple streams of income. They just call it diversification. These other authors tell you that you should diversify into stocks, bonds, some real estate, some cash, etc. Ever heard of Suzy Orman? She’ll tell you the same thing, BUT she’ll tell you it from a financial guru’s perspective.

Robert Kiyosaki will also tell you the same thing, except he calls it the “Cashflow Quadrant, Rich Dad’s Guide to Financial Freedom.” What does this book tell you … How to become financially secure by creating a system that works for you, because each one of us is different? Robert Kiyosaki will tell you that working for a paycheck is not going to make you wealthy and that the really successful ones get cash from businesses they own and/or invest in?

Do these authors’ words sound familiar? Multiple Streams of Income is really what you make it out to be. In other words, you need to determine your tolerance for risk, your best talents, and what amount of time you can devote to these endeavors.

The next thing, then, is to figure out the “what” to do. Robert Allen’s Multiple Streams of Income may not be the most original system, but it IS a system. It’s a way for people to start thinking outside the proverbial box and expand their opportunities. Now, not all opportunities will be successful. Some will fail. In fact, MOST will fail. That is where the gems of knowledge come from … from failing … learning … and re-inventing yourself … only better!

The mainstream media has done a lot to “educate” us on how money works and moves through the system. Robert Kiyosaki believes that not enough people take the time to listen and learn about financial markets. One of his long-time premises is that you don’t have to be rich or smart, just take the time to learn about finance. And, Robert Kiyosaki also states that finances are not some mumbo jumbo that people make up just to confuse other people.

One of Robert Kiyosaki’s newest books is launching soon. It’s called Conspiracy of the Rich. In this book he suggests that there are two stock markets … one that’s transactional based and one that is for long-term investing. The key to investing in anything though is to know what you’re investing in. It doesn’t make any sense for anyone to invest in a product or service without knowing anything about it. The same is true with the stock market.

So, it stands to reason, that Robert Kiyosaki’s points about learning finance makes sense. Don’t blindly follow others into buying a stock without understanding the fundamentals of how the stock market works. He posits that there are many people and companies who take advantage of those who are financially illiterate. You’d almost say that they prey on the unsuspecting.

And, Robert Kiyosaki goes on to tell you that the mainstream media makes it worse. They give you all kinds of statistics and mathematical theories and things that just don’t matter. When they’re challenged by advocacy groups and others, they say they’ll do better next time, but nothing changes.

The other thing that that Robert Kiyosaki talks about is how the “preyers” go after endorsements from people like him. This includes mutual fund companies, brokerage houses, etc. The reason they do this is in order to get more unsuspecting people to buy into their products and services. Well, is this a disservice to the ultimate consumer? I would say a resounding yes. In fact, it’s almost a serious conflict of interest.

Robert Kiyosaki has certainly been a recognized guru for a long time. He’s written and spoken about making money through a multitude of investing opportunities. There are many others who have recently written about the debacle of the Wall Street and Real Estate investing. After all hindsight is so much easier than foresight.

Regardless of which guru you follow, it does make sense to check out multiple sources of information. It is your money, after all.