If 2021 has brought us anything, it's a crazy multiple offer situation real estate market. When supply is low, and demand is high, finding a "good" investment that will provide you a decent ROI is not an easy task.
Whether this is your first investment or your tenth, the basic rules and questions still apply.
Below you will find comments, questions, statements, and what to think about when deciding on an investment property.
What type of loan will you need?
For their first investment, some investors purchase a duplex to live on one side, lease the other, and start their investment journey in this manner as this would typically be a lower down payment.
If you don't go this route, your down payment will be considerably higher. Therefore, speaking with a loan officer should be the first item on your checklist "before" you start your search. Knowing loan type, money down, terms, and interest rate are essential pieces to your investment puzzle.
Location, Location, Location:
Where do you want to purchase this investment?
Do you have an area in mind?
Is this location in the same city you live in or another city in which you have been eyeing properties?
Do you want to be within driving distance of your investment?
Single-Family or Multi-Family:
Are you looking for a single-family purchase?
Two doors - duplex?
Four doors - 4-plex?
Units/doors that exceed four units are considered commercial properties.
Commercial loan terms could be different than a 1-4 residential property.
Your loan officer will provide you with guidance.
Taxes For this Area:
Some loans include PITI, principal interest, taxes, and insurance, yet some do not.
Are the taxes high in the area you are looking to invest in?
Will your loan include PITI?
Fixer Upper vs. Rent Ready:
Are you looking for a fixer-upper or something that is rent-ready?
Pending your answer will also dictate the type of loan, you secure.
Some loan opportunities allow homebuyers and homeowners to finance for renovations into their mortgage to repair, improve, or upgrade their home—a hot topic to address with your loan officer.
Some investors will only purchase tenant-occupied properties ensuring they have immediate cash flow. Is this a must for you?
The lease transfers with the sale of the investment.
How many bedrooms and bathrooms do you want for your investment?
Think about resale in that area.
Two bedrooms are typically harder to sell than a 3+ bedroom investment.
While we understand this is a buy and hold, think ahead for resale opportunities.
Although you are not living in this investment, a good school district still applies, as this may be a deciding factor when tenants are looking for their next home.
Are their HOA dues for this area?
You will want to account for this in addition to your PITI, and with some HOA dues being so high, this could reduce your ROI, making it a bad deal.
Are you self-managing, or will you hire a property manager?
If a property manager is a must, start interviewing property managers as soon as you have your pre-approval letter in hand.
Same as finding a REALTOR to represent you, not all property managers are created equal.
You will want to connect with a property manager who has the same communication style as you do since you won't be a "drive" away from your new investment.
Property Management Fees:
What are the property management fees per month?
When the investment is vacant, do you owe a management fee, or is this based on rent collected?
Do they charge a leasing fee? Some property management firms charge the first month's rent as their fee. This can definitely cut into your profits.
Do they charge when they perform a final walk-thru at move out and account for the security deposit?
Does the PM firm hold the security deposit, or is this something you hold in escrow?
Do they add a service fee to each work order performed, or is this included in your monthly management fee?
Based on all of the information included, your first step to invest is to schedule a 1:1 with your loan officer.
You not only need your pre-approval letter to get started; you want to understand the terms of the loan as this will dictate how much of a sales price you want to entertain.
While this may sound overwhelming, our loan officers can be reached seven days a week to answer any and all of your questions.
Interest rates are still at an all-time low. Now's the time to invest!
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