Quick Investment Property Buyer Tips for First-timers

An excellent and smart way to grow your assets and money is to buy an investment property. First time investors need to be cognizant of the differences between purchasing a home and buying a rental property.

Down payment – In most cases, a 20% down payment is needed however there are some 10% down investment property loans but lenders raise the rate due to the increased risk.

Purchase price: Consider the 1% rule where your purchase price should be 1-percent of what you are able to rent it for.  (See this article)

Loan programs – Say good bye to FHA or USDA loans as loan choices for investment properties. They only allow purchase loans for primary residences, except for the FHA 203(k) loan. Fannie Mae and Freddie Mac loans require 20-percent down

Reserves – You will need a minimum of six months reserves for rental properties.


The Advantages of Purchasing Income Property
For many prospective investors, the reason for buying rental property is the attraction of generating passive income when you reach the age of retirement. Some investors buy a property and use the rental income to partially pay or fully take care of the monthly mortgage payment. Once the mortgage balance is paid in full the rental payments become a stream of income.

Another benefit for investors is accrued equity for the property. After the mortgage is fully paid, your property may have increased substantially in value. Your choices are to sell it, continue receiving the income, or you can refinance and take cash out and restart the cycle.

Keys to Being Ready
A couple of items that are important and need to be considered for first time rental property buyers concern the property itself.

Research the property thoroughly is necessary in order to avoid problems in the future. This includes knowing the location well. Have a plan in place in case the property is sitting vacant for a month or more. Since you are the borrower, the mortgage payment, taxes and insurance need to be paid by you on time.

When repairs are needed for the rental property, it will be your responsibility to get it back in working order in a reasonable time frame. Having said that, you need to make a decision if you will self-manage the property or hire a property manager.

Simply because you have the ability to own a second or third piece of real estate does not mean you will be guaranteed to become rich. Real estate is a long-term investment that has the potential to offer an attractive return on investment when held for the long term. If you are in the market to purchase an investment property contact a lender that you help you achieve your investment goals.