Updated almost 3 years ago on . Most recent reply
Potential First Time Home Hacker
Hey guys!
Many of my posts have been related to what I do from a business standpoint, but I wanted to switch gears a bit. I eventually want to get into my own investment properties (after my student debts are completely paid off and I have some liquidity). I wanted to hear from you guys what has worked with your investment experiences and what you had to learn from.
What kind of loans did you use? Did you buy your first property as a primary residence and then purchased an investment property, or did you do the opposite and buy the investment property first and use the funds you received to buy your primary?
Did you buy a rent ready property or did you buy one that needs some house hacking done to it?
Just curious as to what you did as an investor and if I can potentially use any of your tips with my own experience! Thank you in advance!!
Most Popular Reply
Hello Dominic! My thoughts on this is laid down here. Hope it helps!
A big question for people buying a property, whether it’s an investment property or a primary residence, is “How much house can I afford?” Start by looking at a mortgage calculator to get an idea of rates and monthly payments, and then you can get preapproved to see how much money you qualify for.
Get Preapproved First
One of the biggest pitfalls that home buyers of any kind make is searching for a property before securing financing. Let’s say, after months of searching, you find the perfect rental property. But by the time you get preapproved for a mortgage, the house is already under contract with another buyer. Get preapproved now and have the ability to jump on a good deal at a moment’s notice.
Agency Loans For Investment Properties
For an investment property, you'll likely use an agency loan, which means the loan would be backed by Fannie Mae or Freddie Mac. In most cases, you won't be able to get an FHA or VA loan for an investment property. The exception to this would be if you purchase a multiple-unit property and plan to live in one of the units and rent out the others. If you're planning to go this route, you should start by talking to a Home Loan Expert.
Requirements For Purchasing An Investment Property
The agency loans available to you will either be a fixed-rate mortgage or an adjustable rate mortgage (ARM). Both of these options have specific requirements when it comes to the down payment and credit score.
How Do I Determine The Potential ROI For My Rental Property?
When looking for a great investment property, the first question you need to ask is "Can I actually make money?" If the answer is no, it's obviously not a great investment. To see how much money your property could potentially make, you'll need to consider the return on investment (ROI). The ROI can be calculated by first finding the property's net annual income. This is the rent money that's left over after you've paid the taxes, insurance, property management fees, expected repairs (plan to spend 1% of the property value on this), potential vacancy periods, HOA fees (if applicable) and any utilities that aren't going to be covered by the tenant. To find the ROI, take the annual income and divide it by the amount you spent on the property. For example, if the net annual income is $7,500 and you spent $100,000 for the property, your ROI is 7.5%.Use this calculation to see if each rental property is a good potential investment.
What Makes A Good Investment Property?
When scanning neighborhoods for your first rental, there are a few specific requirements you should be looking for to determine if the property would be a good investment. In a nutshell, you want a house that requires low maintenance, has limited vacancies and allows you to have a good rent-to-value ratio.