Many times, the property a first-time investor may be considering renting out is the property they are currently living in, and is their primary residence. The interest rate may be favorable and the balance remaining on the property may be such that they could pull out equity to help finance their first investment property.
The down payment required to purchase a new investment property is typically greater than that of a primary home, and the interest rate is typically a bit higher due to perceived market risk. The standard percentage down is typically 20-25% of the sales price.
Lastly, cash reserves required in savings is important. Most investors require a 6-12-month cash reserve of the PITI (principal, interest, taxes & insurance) in the form of a liquid or semi-liquid cash account.
Many factors go into being a landlord: are you going to self-manage, hire a property manager, are you emotionally equipped to deal with tenants/contracts/property upkeep and everything else that goes into maintaining a property you don’t reside in. Are you going to stick with single-family homes or branch out into 2-4 duplex properties or multi-family units?
It’s a great opportunity to own investment properties here in the Treasure Valley as property values continue to rise and you build wealth through real estate. Arm yourself with knowledge of the market, hire a trustworthy real estate agent who knows where investment properties may be and work with a qualified lender to help guide you through the steps.
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WHAT TO KNOW BEFORE GETTING INTO INVESTMENT PROPERTY
RESEARCH
From a financing perspective, first time investors should research the requirements of acquiring investment properties. The research might include down payments requirements, cash reserve requirements after closing and if proposed leases could be utilized in the qualifying.
WHICH TYPE OF MORTGAGE
An owner-occupied mortgage is one in which the borrower on the loan is also the occupant of the home. An investment property mortgage is one which the borrower on the loan does not occupy the home and looks to a tenant to support the cash-flow of the payments.
MARKETABILITY OF PROPERTY
The primary items a buyer should look for would be how marketable is the subject property to ensure a consistent occupancy by a tenant and the ability to cash-flow the property in times of tenant vacancy.