Need advice on buying my first investment property

[Chris L.]

Hi there. Interested in buying my neighbors home as my first investment property. It’s a highly desirable area and homes sold relatively quickly -pre pandemic. I have not bought an investment property before and am looking for some input on the following:

1. The owner has a friend that is a realtor that will be handling the sale of the property and I have been communicating with them but they are not providing a price and they are not doing an appraisal. They are selling as is but letting me bid first. Just wondering what steps I should be taking for this purchase. I am thinking I should bring in my own appraiser, inspector and contractor to give me some insight into issues, pricing and cost of repairs. Anything else or what do you recommend?  Is there an online service that would give me a ball park figure on what the house is worth, before I go into getting an appraiser etc? How do i determine how much I should put into the home before renting or selling and how the rental market is doing for homes?

2. I am wondering if this is a bad time to be purchasing a property or if COVID hasn’t really impacted this area. I have folks calling me all the time trying to see if I will sell my house so I assume it’s pretty good here. Houses tend to sell pretty quickly but I have noticed in the past years that it’s the houses under 300k that sold quickly and those above sit a little longer but prices have gone up so much here that I’m assuming that has changed.The house is probably around 300k. 

3. Is the price range too high for a rental-probably 300k? My hope is to eventually sell in the future but for now I thought of renting. 

4. I’m wondering about the rental market for a 3bedroom home and if COVID has impacted landlords here. A concern is that the tenant will not be able to pay their rent in this COVID climate. What is happening right now with regards to rentals in the area and what happens if the tenant does not pay because of COVID?

5. Would you pay cash or get a mortgage on the home? What approach is better. Can you pay cash and then get a mortgage at a later time? Thought while I was having repairs done that it would be better to not be paying mortgage interest but also don’t want all my funds tied up in a home. 

6. Please share any input or suggestions for a first time investment property buyer. I have a disability and am looking for a way to use existing funds to make further income and I thought investing in property would be a good option. 

[Chris Tarpey]

Great to meet another NC investor, lets unpack this a bit.

1) This answer may bleed over into other questions, but you should be financing this property. Raleigh is an expensive market, comparatively to other parts of NC and most people done have $300k sitting in cash to purchase outright, and even if you did why put all your eggs in one basket? if you can leverage the bank, do so. Interest rates are extremely low and make it affordable to use a bank for 75-80% of purchase. Using a bank will allow you to get an appraisal, inspection and a due diligence period to get all of this done. I would also recommend finding a real estate agent to represent you, help you with the numbers to see how the house stacks in value/and rents to others in the neighborhood.

2) there is always a risk for any tenant not being able to pay, and sure COVID may increase that risk but in my opinion not to the point of it not being worth it to buy investment properties. Screen tenants who you know have a steady job (maybe dual income) so you can mitigate your risk. It is your house, you can choose the best tenant that fits your needs to produce the lowest risk of non-payment.

3) Im not all too familiar with Raleigh, but I know compared to Onslow County, it is more expensive. However, I will go on a limb here and say they also command higher rents. See what similar houses are renting for in the area, check Zillow, call property management companies, but ultimately get a real estate agent who can build and show you the reports.

4) Similar to answer (2) but MOST landlords are working with tenants to get through COVID. If for whatever reason you have a tenant impacted by COVID and cant pay rent, there are other things you can do such as payment plans. I wouldn't evict a tenant for not being able to pay, at the end of the day I have enough reserves to cover the mortgage if need be. Like I said earlier, you can do your best to mitigate this when screening for a tenant.

5) Answered in (1), depending on the condition of the house, and if you qualify for a mortgage, I would leverage the bank. You CAN pay cash, do repairs and then get a mortgage, possibly pulling out more capital then you put in. Personally I think you set yourself up for increased risk when you put that much capital into one house. If the home just needs some cosmetic repairs, I would purchase with a mortgage and then make the repairs, still leaving you with capital in reserves and maybe enough to snag another property.

Best of Luck!