First Steps Of Action

[Charles Giovanniello]

Hey all,

I’ve been educating myself in the realm of real estate for about a month now. I know it’s not very long, but I decided to go to the bank today just to see if I qualify for a loan of $120,000 so I can invest in a rental property in Bethlehem PA. I’d put 20% down (~$30,000 if I do go for the max amount) and the interest rate would be 4.875%. We calculated the expenses and it came out to be $1,151 per month (Not including utilities). We chose the occupancy type as a “second home” to keep the interest down because apparently if I chose “investment” the interest would be higher. According to Rentometer a $1500/month rent is reasonable in that area so a $349/month cash flow would be possible. I did get pre-approved for the loan so I believe I can start shopping around the area soon.

My question to the community is basically, am I doing this right? I’m new to this and I like to learn by taking action as well as reading. But I really want to make sure that this is not a backwards approach. Any feedback is greatly appreciated!

[Nick G.]

Hi @Charles Giovanniello. You asked the question: "Am I doing this right?" The answer is yes, with a couple exceptions. 

The first and most serious: starting out your real estate adventures by committing loan fraud is foolish. If the property you are intending to buy is a rental, do not buy it as a second home. Second homes have occupancy requirements that qualify them as such. If you want a lower rate, put 25% down, or don't buy a townhome, or improve your FICOs, or buy down your rate, etc. 

Secondly, and you probably weren't going to, but don't base any serious decisions or projections off of Rentometer. Automatic value estimators of any variety are inaccurate at best, far too sketchy to be making a serious business decision off of. While you're researching your loan and forming a lender relationship, you should also be forming a relationship with a local investor-friendly agent - try to find one here on BP who's been around a while and seems legit. Good agents tend to have the best pulse on values, both rental and sales, along with the trends that impact them.

With all that said, it sounds like you're doing this right in my book. Research first, implement second. Keep it up.