I am wondering if there is a better approach to my first investment property that will not be a primary residence? My wife and I along with our two children are pretty rooted in our current community and love it there, but are very interested in REI. The most successful stories I am hearing about starting out involve house hack or financial benefits from primary residence factor. Is there a better approach for initial REI without the property being the primary residence?
Good morning Jeremy!
The main reason people love to make it a primary for their initial investment property is because you get a great primary investment rate and are able to do a lower down payment when you live there. If you are looking at an investment property, you'll need a higher down payment (15-20% on a single family home) and the interest rate is going to be higher, as it's more risky on the lender's perspective.
You'll also need to qualify with your current housing expense + the new mortgage, less any rent that you could receive from that property with a percentage of the income. That can be tricky for some people if the property isn't going to cash flow well (i.e. if you are purchasing for appreciation rather than cash flow).
Hope this helps!
Yes, out of all the investment, most investors profitable investment is actually primary residence only because you could get the best Return On Equity compare if you buy investment rental.
Thanks Brooke and Carlos.
Are there any best practices/better approach to using my current mortgage as leverage? I currently have about $15k cash and about $25k in equity in our current house. Would a HELOC or some sort of refinancing make sense on a first investment that is not a primary res?
Hi @Jeremy Smith -
You will definitely have to see what you could actually pull out, as most states require that you leave some equity in your property. Could you partner with someone to purchase your investment? It also really depends on your current interest rate. Rates are going up, so if you locked into a really good one last year, you may not want to refinance.
The thing you need to do is figure out what you can buy with what you have and what you qualify for.
Find out how much actual liquid cash you have and how much of a mortgage you qualify for in addition to your primary mortgage. Once you do this you will have a better picture of what you are looking at.
After this I would run the numbers based on a pure investor level.
Liquid in the bank ( closing costs, repairs to make rent ready, and 3 months reserves)
If you have this all lined up then the process if very straight forward and easy, you find a place that meets your criteria, you buy it, make it rent ready, find a renter and then rent it out.
If you have any questions feel free to ask them and I will try to answer them.