Investing in a Rental Property
Real estate investing can take many different forms. You can buy foreclosure properties, abandoned properties, or move-in ready homes. If you are thinking about buying a home as an investment, though, you should not buy anything without considering investing in a rental property.
A rental property is different because it can actually generate money while you own it. Rent prices are higher than mortgage prices in most areas, especially for buildings that have multiple units. For example, you may be able to buy a building that requires you to pay $1,500 a month for the 30 year mortgage, but you know that you can get anywhere from $750 to $900 per unit in your area. With four units, that means you can bring in between $3,000 and $3,600 each month, paying the mortgage and giving you an income.
One strategy, for example, could be putting all of the income that you make back into the house. You can get through the whole mortgage in far less than 30 years. You can then sell the house, and you get to keep 100 percent of the profit for yourself. You do have to forgo your monthly income to do this, but it saves you thousands in interest on the property since you pay it off so quickly, and you get a bigger payday in the end. You could also keep it longer, making more each month since your mortgage is paid off and you only owe for the property taxes. Whatever strategy you choose, a rental properly may be the perfect investment for you if you are interested in real estate.
Starting off in real estate investing can create many new questions you had never considered. One area that changes the game is financing rental property. Banks and mortgage companies deal with rental property differently than home owner occupied property. You will need to meet a different set of criteria for being approved for the loan for your rental properties.
One difference you will immediately discover is in the amount of your down payment. The low down payment loans are not commonly available for purchasing rental property. Expect to pay 15% down, and sometimes even more.
When you start exploring options for financing your rental property investment, you have several options to consider. The first most people consider is a mortgage broker. A good second option is your local banks or savings and loan companies. Along with checking with the banks and mortgage companies, check to see if FHA loans are available for financing. The last option commonly considered is private lenders.
Since you are moving out of buying for yourself, and into buying as a business investment, all lenders will want to know the details of your proposal. They will want to evaluate your potential monthly income in comparison to the mortgage payments, and other expenses of maintaining the rental property. Expect to provide them with insurance estimates, taxes you would expect to pay, utility costs, and routine maintenance cost estimates.
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Category: Family Finances, Housing, Mortgage, Real Estate
