Hello, this is Stacey Christopherson with C4 Elite Real Estate Team and Coldwell Banker in Layton, Utah. We are almost done with our series 30 Days to Buying a Home in Utah. One topic we have not gone over is buying investment properties. In 2018, the inventory of existing homes went way down however, the number of buyers saw a steady increase. This trend drove home prices up and multiple offers on homes were common place. Buyers became frustrated as did their agents. This market was extra hard for buyers looking to purchase an investment property. People who purchase investment properties are looking for returns in the form of rental income. Others are looking to redo the interior and then sell the home for a profit. Read on to learn about purchasing investment properties.
[su_button target=”blank” style=”stroked” background=”#1913d0″ color=”#fffdfe” size=”11″]Click Here to start your online search[/su_button]
When real estate prices are high, it is very hard for investors to find homes that are being sold under market value. Whether they are looking to rent out the home or looking for one they can rehab. I am working with an investor currently, and we were able to find a home that was slightly under market value and had a more days on market. Through negotiations with the seller, we were able to get the home under contract. He intends to update and improve the home and then sell when it is complete. We did a lot of research and looked at several homes prior to writing a contract on his current project.
One thing to consider when purchasing an investment property is that you need to plan on a big down payment. Traditional financing like a conventional loan, or cash, is the only way for investors to purchase a non-owner-occupied home. Most lenders will require a 20% down payment for investment properties. Mortgage companies offer several different types of home loans in a standard purchase. However, again, the investment properties are higher risk and therefore require more down. Additionally, the interest rate may also be higher as well as loan costs. However, in the event of my current investor client, they do not plan on keeping the property very long. The higher interest rate is not as significant when the plan is to flip the property. If you are looking to be a landlord, and buy investment property to rent out, you will want to shop around for the best interest rate.
It’s Helpful to be Handy
When considering an investment property, and becoming a landlord, it is beneficial to be handy and like to fix things. If you are going the landlord route, there will undoubtedly be repairs that pop up all the time with tenants in the home. If you are not handy, I highly recommend a list of people you can call in the event of emergencies. Usually when renting homes, tenants call in the middle of the night about a broken water heater or furnace that is not heating. It does not ever seem to happen during normal business hours.
Keep Money in Savings
Furthermore, whether you are flipping or renting, you need to be sure to have a sizable savings on hand for unexpected repairs, especially if you are flipping. You never know what you will find once you get behind the walls of some houses. So, when you run the numbers be sure to have a cushion in the savings account for the unexpected. Of course, if you are renting the home, the savings that you have will come in handy prior to the first tenant moving in as well as in between tenants. It may take a month or two to get the home rented or repair items before you can begin to market the property. During this time, you will have to pay the mortgage, the property taxes and insurance. A savings account with money for emergencies is a must when purchasing investment properties.
Unless you are a contractor or know someone who will do work for you inexpensively, be aware of fixer uppers. It may cost too much to flip a property if you do not know how to do the work yourself. Once you go to sell the property, it will be very hard to make a profit if you have spent all your money on the updates and repairs. Always look for options or update the property with modest but current trends.
I recommend starting small when purchasing your first investment properties. Smaller homes, while they still may have maintenance, will always cost less than a larger home. Additionally, if you are going to be a landlord, you may want to start with a duplex versus investing in a full apartment building. You will have minimal units to get ready and rent out. Also, if you are borrowing money from a co-investor or hard money lender, smaller properties will cost less up front. Be sure you trust and are comfortable with anyone investing with you.
Our Team of Experts
Buying a home that you plan to live in is a complicated process. When you decide to purchase an investment property, there are many other pieces to the puzzle. Be sure to call The C4 Elite Real Estate Team anytime. We will gather our team of experts and help you navigate this and any other real estate transaction.