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Variable rate financing in real estate investing

When it comes to real estate investing, the investor usually has one of two primary goals, obtaining ongoing cash flow or getting either a short-term or long term capital gain. First, some basic definitions:

Capital Gains – If you invest for capital gains, your goal is to sell something for more than you bought it after that asset has appreciated. In order to receive the gain, you typically no longer own or control the asset.

Cash Flow – If you are a cash flow investor, your goal is to receive a series of cash payments from your investment, typically monthly or quarterly rental payments, while you own or control the asset.

There are of couse other considerations for real estate investing, primarily depreciation and tax advantages, that go into a decision to buy, sell, or hold an asset such as a residential or commercial real estate property. No matter what your goals, unless you are financing the purchase with existing assets, you will have to consider the role that your loan or mortgage will play.

If you’ve ever taken out a loan, owned a credit card, or have a mortgage for your house, you are probably quite familiar with the various interest rate options you may have. Investors are typically more sophisticated than buyers who are only looking for a place to live in rather than an investment property, and this could give the investor certain advantages. For example, if you have an investment that was financed at a fixed rate, and you are in a position to sell to a buyer who is unable to find a reasonable rate loan, if your fixed rate were low enough, you could offer a variable rate that would ensure a larger cash flow to you in the future.

To get an idea of what the situation may be like for someone who is considering purchasing a single family residential property that you own, you may want to visit a bank site to see what a Standard Variable Rate may be for your buyer.

If you know what kind of options your buyer has, and what your options are for offering alternative financing options, you could put yourself in a better position to profit over the long term.

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