Real Estate Investing Real Estate Investing Investment Property Financing Questions and Answers 2 — Questions and Answers
Question 1: What is the typical minimum down payment percentage required for an investment property conventional loan?
- 15%
- 20%
- 25% (Correct answer)
- 30%
Correct answer: 25%
Most conventional lenders require a minimum 25% down payment for investment property purchases.
Question 2: Which loan metric compares a property's net operating income to its annual debt service payments?
- Loan-to-value ratio
- Debt service coverage ratio (Correct answer)
- Cap rate
- Cash-on-cash return
Correct answer: Debt service coverage ratio
The debt service coverage ratio (DSCR) divides net operating income by total debt service to measure a property's ability to cover its loan payments.
Question 3: What is a blanket mortgage primarily used for in real estate investing?
- Financing a single luxury property
- Covering multiple properties under one loan (Correct answer)
- Refinancing an existing mortgage at a lower rate
- Providing short-term bridge financing
Correct answer: Covering multiple properties under one loan
A blanket mortgage allows an investor to finance multiple properties under a single loan with one set of terms.
Question 4: Which type of financing allows investors to borrow against the increased equity in a property after renovations?
- Hard money loan
- Cash-out refinance (Correct answer)
- Seller financing
- Home equity line of credit
Correct answer: Cash-out refinance
A cash-out refinance replaces the existing mortgage with a larger one based on the property's new appraised value, giving the investor access to the equity gained.
Question 5: What does the term 'seasoning period' refer to in investment property financing?
- The time required to hold a property before refinancing (Correct answer)
- The period during which interest rates are locked
- The duration of a construction loan
- The waiting period after a loan application
Correct answer: The time required to hold a property before refinancing
A seasoning period is the minimum time a lender requires an investor to own a property before allowing a refinance, typically six to twelve months.
Question 6: In a 1031 exchange, what is the maximum number of days an investor has to identify replacement properties after selling?
- 30 days
- 45 days (Correct answer)
- 90 days
- 180 days
Correct answer: 45 days
Under IRS rules, an investor must identify potential replacement properties within 45 days of selling the relinquished property.
Real Estate Investing Real Estate Investing Investment Property Financing Questions and Answers 2
What is the typical minimum down payment percentage required for an investment property conventional loan?