Buying first investment property
What are the things to look for when buying your first investment property and how can we make it happen with low risk in current inflated market with higher interest rates.
Biggest thing to focus on is your numbers. If the numbers work at the current rates things can go up or down, if your numbers are good, there shouldn't any concern.
If you plan on flipping, BRRRR, or even turn key get your numbers lined up. The numbers will depend on which strategy you use but figure out you rehab or touch up costs, your ARV, Market rents, closing costs and your carrying costs.
Take the time do the math, get an experienced loan officer on your team and have them check the numbers.
Best of Luck!
100% agree with @Torrell Palmason. It certainly depends on what sort of cash flow you're looking for and your budget.
In Detroit, it would be good to either nab something that is either already tenant occupied (with a lease signed of course) or a property that requires minimal work to get it up and running. Mortgage payment is going to take a big chunk out each month.
Have you looked in Hamtramck? A duplex is always a good option if it's in a good location.
Quote from @Shane O'Malley Firek:
100% agree with @Torrell Palmason. It certainly depends on what sort of cash flow you're looking for and your budget.
In Detroit, it would be good to either nab something that is either already tenant occupied (with a lease signed of course) or a property that requires minimal work to get it up and running. Mortgage payment is going to take a big chunk out each month.
Have you looked in Hamtramck? A duplex is always a good option if it's in a good location.
I’m looking for $200K-$300k property with atleast 1.5% of purchase amount in rent.
Quote from @Sunil Nalla:
What are the things to look for when buying your first investment property and how can we make it happen with low risk in current inflated market with higher interest rates.
Low risk? Buy in a state like GA or OH . If you go Private money sometimes you can get away with less down but the rate is a lot higher but you can always refinance usually after 6 months. Hard money 20-30% ( higher rate and easy/fast to qualify), Conventional investment loan 30% down.
I would also look into seller financing too.
Jumping in here. A hard money loan would only be used if you need to close really fast to get the deal or if a rehab is needed before refinancing. If neither of those 2 things exist, then there is no need for a hard money loan. Hard money will be anywhere between 10-25% down depending on the experience of the borrower and the lenders programs. Its best to get with a lender that does hard money frequently along with the conventional, government and Non-QM loans. It is these rare loan officers that can show your full compliment of options.
A conventional loan for a single family rental is 15% down and a 2-4 unit is 25% down. There are some Non-QM loans that can go to 80% LTV on 2-4 units so it would be 20% down on those loans.
The other issue you can run in to in Ohio and some other states is small purchase prices. The typical minimum loan amount with most lenders is $100,000 and occasionally I have a investor at $75,000. If the purchase would cause the loan amount not to hit at least the minimum limits, then your best bet is a local credit union, they are regulated differently and can do these loans at times. Not all of them will, so burn up the phones if you need to?
I hope this helps?
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You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:
There are an almost countless number of benefits to owning investment property. Tenant rents pay for your operating expenses and mortgage, with any remaining cash flow left over as profit. Property depreciation can then be used to reduce your amount of taxable net income, sometimes even to zero (even though you actually earn a cash profit).
Investment real estate is also a great way to diversify your investments, save for retirement with a self-directed IRA for real estate, and build your wealth over the long term. Of course, each advantage comes with potential drawbacks as well.
In order to make your first investment property as profitable as possible be sure to:
- Accurately calculate repairs and ownership costs, property values, and fair market rents
- Focus on cash flow first and appreciation second, unless you’re investing in ‘cash cow’ rental real estate
- Understand that ongoing ownership costs include not just your mortgage, but also expenses such as leasing and property management, recurring repairs and landscaping, and property and rental taxes
- Avoid getting emotional – when you’re buying your own home, it’s alright to care about things like paint color and carpeting, but always remember that investment real estate is strictly a numbers game
- Remember that turnkey single-family houses and small multifamily property are already rented to qualified tenants, so your cash begins flowing the day you close escrow.
Good Luck!
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great question. for me (and i did not do this...) i should have bought something where i could refinance and pull the cash out. i ended up doing this down the road with hard money etc but i ended up spending all my money on a market price house and then was stuck when i wanted to buy another because i had no money!
get in with a good wholesaler and a good hard money person!
@Sunil Nalla
Make sure the numbers work.
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The first thing is to figure out how you want to play the game. There are lots of ways to be successful in real estate. Pick one strategy that fits with your lifestyle and goals and become an expert at it. One you have mastered it move on to another.
Hi Sunil! Detroit is definitely a great area to invest in right now. Consider reaching out to a property manager to help you get started as they should know a lot about about the rental market and how to best go about investing in properties here.
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@Sunil Nalla 1) make sure you are fully pre approved for financing ( assuming you need a loan ) 2) make sure you have all the data in place with the lender 3) this will allow you to be aware of the loan expenses / cash to close and monthly payment plus having it out of the way - you can focus on locating the prop
Don't get caught up in buying the "cheapest property" you can find. It's always about the balance of price/rent/location. Those "cheap" properties usually don't have a good rent collection percentage.
We love the market here in Metro Detroit and have identified areas that work really well.
Can point you in the right direction to all the resources you would need to build a team.
My Personal portfolio is here and it cash flows extremely well and is low maint.
Purchase: $80k-$130k
Rent: $1200-$1500
ROI: 10-14%
Cash flow: $250-$350/door
Appreciation: Double digit (for past 10 years, will gladly send data)
Location: C, B- (suburbs and certain markets)
We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, mortgage, Amazon fulfillment, and more jobs.
The bad reputation comes from OOS investors wanting $20k D market properties. We don’t buy those lol.
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Hi Sunil-
I would look into a cash out refi...would love to connect and discuss more about what you are looking for/answer any questions you have!
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Quote from @Sunil Nalla:
What are the things to look for when buying your first investment property and how can we make it happen with low risk in current inflated market with higher interest rates.
I see you are from Detroit, so I don't need to tell you that there are a ton of hardcore ghetto areas and decent neighborhoods in the dirty D. Make sure your 1st investment is in an area you are comfortable with. If you know how to handle the ghetto go for it. But if you're only used to dealing with people in the nicer areas I'd stick to those. The blight, crime and nonsense of the ghetto can really screw up new investors who don't have any experience dealing with that stuff. It's brutal.