When investing in real estate, it’s always smart to have an expert guide you. Here, Jon Lamkin, senior vice president of Guaranteed Rate in Millburn, shares his knowledge to ensure you’re moving in the right direction.
How do people start investing in real estate?
The second home market has taken off over the last five years. Many homeowners have seen great appreciation in their primary residence, and we have helped many clients use the equity from a primary to help buy a second home that they can use instead of paying for expensive vacations.
After owning it for a few years, some people realize that they might not use it as much as they thought. With the growth of sites like Airbnb and VRBO, many people owning second homes have been able to pick a few weeks to rent it out versus having the house sit empty.
What about a straight investment property to just use as a rental?
The key is to have positive cash flow. If the mortgage payment, taxes and insurance run $4,000 a month, and you’re collecting $5,000 a month, then that's a phenomenal investment because now you have other people paying off your mortgage .
There are also very good tax advantages you can get when you own an investment property because you're writing off everything that you spend on the house. When you buy an investment property, you are required to put down 20% - 25%, which is much more than the 3% down that is required for a primary residence.
Make sure you save six months of rental income for any type of necessary repairs.
How can Guaranteed Rate’s Rate Reduce temporary buy down program make homeownership and investments more affordable?
A temporary buy down reduces the interest rate on your mortgage for the first couple of few years. Rates can be reduced up to 3% lower than the current market rate for the first year and then it gradually increases each year. Clients do have the ability to refinance at any time if it makes sense to do so.
What’s great about the Rate Reduce Program, in the event rates drop, the client can refinance at any time, and if there are funds remaining in the buy down, they are used to pay down the principle balance.