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TIPS FOR BUYING A RENTAL PROPERTY
Are you looking to purchase and pocket a huge sum of money from a rental property? Well, anyways, in this article, I'm going to give you some important tips on how to buy a rental property.
These are the steps every budding property investor should take to pick a good cash-generating rental property. By following these steps, you’ll be well prepared to buy your first rental property. As a form of real estate investment, buying a rental property is considered to be a very good one.
Investing in rental properties takes a lot of time. As a result, you need to think in the long-term when planning the investment. Learn more about real estate investing and set a specific goal for the future. Be sure to keep your expectations realistic based on your financial capabilities.
Furthermore, you should buy rental property if you want to diversify your holdings beyond stocks and bonds. The biggest advantage of buying a rental property is that it's a passive investment that required very little day-to-day management from owners or landlords. The other advantage is that you start earning a return on your capital investment immediately in the form of rent. Imagine this – After you make the down payment and pay all closing costs, the renter pays off your mortgage. How good is that?
Tips or Buying a Rental Property
These are the steps every budding property investor should take to pick a good cash-generating rental property. By following these steps, you’ll be well prepared to buy your first rental property. As a form of real estate investment, buying a rental property is considered to be a very good one.
Investing in rental properties takes a lot of time. As a result, you need to think in the long-term when planning the investment. Learn more about real estate investing and set a specific goal for the future. Be sure to keep your expectations realistic based on your financial capabilities.
Furthermore, you should buy rental property if you want to diversify your holdings beyond stocks and bonds. The biggest advantage of buying a rental property is that it's a passive investment that required very little day-to-day management from owners or landlords. The other advantage is that you start earning a return on your capital investment immediately in the form of rent. Imagine this – After you make the down payment and pay all closing costs, the renter pays off your mortgage. How good is that?
Tips or Buying a Rental Property
Tips for Buying A Rental Property
1. Consider Your Comfort Level with Being a Landlord
Do you know your way around a toolbox? How are you at repairing drywall or unclogging a toilet? Sure, you could call somebody to do it for you, but that will eat into your profits. Property owners who have one or two homes often do their own repairs to save money.
Of course, that changes, as you add more properties to your portfolio. Lawrence Pereira, president of King Harbor Wealth Management in Redondo Beach, Calif., lives on the West Coast but owns properties on the East Coast. As someone who says he's not at all handy, he makes it work. How? "I put together a solid team of cleaners, handymen, and contractors," says Pereira.
This isn't advisable for new investors, but as you get the hang of real estate investing you don't have to remain local.
2. Get Advice from Other Landlords
Finding good tenants and keeping good tenants are indispensable skills. You’ll want to join a local landlord association or talking to experienced landlords just to get some wisdom. This will help you avoid making mistakes, so you will hire a property management company that will handle tenant relations for you.
3. Pay Down Personal Debt
Savvy investors might carry debt as part of their investment portfolio, but the average person should avoid it. If you have student loans, unpaid medical bills, or children who will soon attend college, purchasing a rental property may not be the right move.
Pereira agrees that being cautious is key, saying, "It's not necessary to pay down debt if your return from your real estate is greater than the cost of debt. That is the calculation you need to make." Pereira suggests having a cash cushion. "Don't put yourself in a position where you lack the cash to make payments on your debt. Always have a margin of safety."
4. Secure a Down Payment
Investment properties generally require a larger down payment than owner-occupied properties; they have more stringent approval requirements. The 3% you may have put down on the home where you currently live isn't going to work for an investment property. You will need at least a 20% down payment, given that mortgage insurance isn't available on rental properties. You may be able to obtain the down payment through bank financing, such as a personal loan.
5. Find the Right Location
The last thing you want is to be stuck with a rental property in an area that is declining rather than stable or picking up steam. A city or locale where the population is growing and a revitalization plan is underway potentially represents an investment opportunity.
When choosing a profitable rental property you should look for a location with low property taxes, a decent school district, and plenty of amenities, such as parks, malls, restaurants and movie theaters. In addition, a neighborhood with low crime rates and a growing job market may mean a larger pool of potential renters.
6. Compare Buying with Financing
Is it better to buy with cash or to finance your investment property? That depends on your investing goals. Paying cash can help generate positive monthly cash flow. Take a rental property that costs $100,000 to buy. With rental income, taxes, depreciation, and income tax, the cash buyer could see $9,500 in annual earnings.
On the other hand, financing can give you a greater return. For an investor who puts down 20% on a house, with compounding at 4% on the mortgage, after taking out operating expenses and additional interest, the earnings add up to roughly $5,580 per year. Cash flow is lower for the investor, but their annual return on investment is 27.9% versus 9.5% for the cash buyer.
7. Beware of High Interest Rates
The cost of borrowing money might be relatively cheap in 2020, but the interest rate on an investment property will be higher than traditional mortgage interest rates. If you do decide to finance your purchase, you need a low mortgage payment that won't eat into your monthly profits too significantly.
STEPS TO BUYING A HOME FOR THE FIRST TIME
Unlike buying a new car, buying a home is one of life’s biggest moments; and to be precised, this process can be tedious, especially as a novice who is becoming first-time home buyer.
As for most people, it’s the biggest purchase they’ll ever make. Every penny is worth it when all goes well... But how can you increase your odds of landing the perfect, affordable home without too much stress along the way? Huh, these tips will help you navigate the process, save money and avoid common mistakes. So lets dive in!
As for most people, it’s the biggest purchase they’ll ever make. Every penny is worth it when all goes well... But how can you increase your odds of landing the perfect, affordable home without too much stress along the way? Huh, these tips will help you navigate the process, save money and avoid common mistakes. So lets dive in!
What is a first-time homebuyer?
Logically, a first-time homebuyer might refer to someone who has never purchased a home before. But in some contexts, the definition is actually much broader than that.
Prospective homebuyers who can’t scrape together a substantial down payment may be eligible for assistance through first-time homebuyer grants and loan programs. To qualify for many of these programs, prospective buyers generally must not have owned a home for at least the previous three years.
How to qualify for a home
As per Bankrate, Qualifying for a home can be a challenge. Home prices have shot up since the housing crisis and are now at all-time highs. Meanwhile, wages continue to stagnate and consumer debt levels have surpassed $4 trillion – not including mortgage debt – increasing 22 percent over the past five years.
However, these general economic conditions may not apply to your personal financial situation. Before looking at housing options, take stock of your finances by answering these questions.
How much home can you afford?
First look at how much debt you have relative to your income, called the debt-to-income ratio. When determining how much of your gross income you should spend on a home, most financial advisers say it should be capped at 36 percent.
The ideal ratio for housing costs, including the mortgage payment, real estate taxes, homeowners insurance and homeowners association dues, should be 28 percent, while 36 percent should represent all your monthly debt, including housing. Some lenders even allow a DTI ratio up to 50 percent, however, the higher your DTI ratio, the more likely you are to pay a higher interest rate because you’re considered a riskier borrower. You don’t want to become house poor and stretch your monthly budget to its limit, so proceed with caution.
The ideal ratio for housing costs, including the mortgage payment, real estate taxes, homeowners insurance and homeowners association dues, should be 28 percent, while 36 percent should represent all your monthly debt, including housing. Some lenders even allow a DTI ratio up to 50 percent, however, the higher your DTI ratio, the more likely you are to pay a higher interest rate because you’re considered a riskier borrower. You don’t want to become house poor and stretch your monthly budget to its limit, so proceed with caution.
Do you need a down payment?
With a 20 percent down payment, you can avoid paying private mortgage insurance, which actually covers the lender (not you) should you default on the loan. But first-time homebuyers can get away with paying less than 5 percent with certain types of loans. USDA or VA loans require no down payment at all, while FHA loans require a minimum of 3.5 percent down. Conventional loans backed by Fannie Mae and Freddie Mac require as little as 3 percent down.
Is there a minimum credit score?
With a high credit score, you can get favorable loan terms that will save you gobs of money over the life of your mortgage loan. But you can still get a loan with a score as low as 500 (for FHA loans) or 620 (for conventional loans).
Benefits of owning a home Finish the reading
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