Are you considering buying an investment property? Well, if you are thinking about doing so right now, we’ll definitely ask you to go ahead. As this is a period of inflation, you will definitely be able to sell it for a huge amount of cash. However, there’s a hitch!
Selling a property can be pretty tricky, especially for someone who isn’t a proper realtor.
Thus, if you want to increase your profit amount, we will ask you to take the assistance of a professional or you could go through this article till the end and learn about the nooks and crannies of buying an investment property. In case you need any additional help, you can also visit the following link – https://www.teifkerealestate.com/.
Buying An Investment Property – A Step-By-Step Guide
If we’re being honest, real estate, in essence, is one of the best investments available out there. However, for that, you have to follow the below-mentioned steps closely.
Step – 1: Determine What You Want To Do
Managing an investment property, in truth, is pretty challenging. If you are doing everything on your own, it will take you a surprising amount of time as well.
Hence, if you want to become a successful property investor, you will have to hire a manager for your purpose at some point. So, what do you think?
If you don’t want to be a solo investor, then you can always choose a joint venture, a REIT, or crowdfund to follow your dreams.
Step – 2: Save Money For Down Payment
If you are thinking about taking a loan, we’ll ask you to save money for the down payment. It can be advantageous in two aspects for you. Firstly, if you are paying a huge amount of money as a down payment, you will receive an excellent interest rate. The general loan terms will be much better as well.
Secondly, the mortgage payment, in this aspect, will be much lower than usual as well. Therefore, you will have a lot of free cash in your hands later on. In most cases, people tend to opt for a conservative LTV ratio of 75% by paying 25% of the money in a down payment.
Step – 3: Pay Your Personal Debt
As a savvy investor, you may try carrying debt as a part of your portfolio investment strategy. However, if you are an average individual with no knowledge of property investment, we will ask you to avoid it.
If you are currently paying for a student loan or unpaid medical bills, we’ll suggest you take care of it first. Once you are done, you can, then, try buying a rental property for your purpose.
Step – 4: Choose The Right Location
As an investor, the last thing you’ll want is to stick with a house in a declining area. Hence, before you buy a home, make sure to check the location and see if it’s stable or not.
A locale or city where a revitalization plan is underway or the population is growing should be an ideal investment opportunity. Aside from this, we will also ask you to look for the following when choosing a profitable rental property –
- It has a decent district-level school.
- The overall crime rate is pretty low.
- There are several coffee shops, restaurants, shopping places, parks, etc., available.
- Access to public transportation is pretty easy.
- Availability of plenty of amenities.
Having even a single of these features can help increase the overall price of your property. Just to let you know – you can improve your profit rating by selling a coastal property as well. However, for that, you’ll need to know the proceedings properly.
Step – 5: Build Your Cash Reserve
Yes, paying your closing expense and down payment will take a considerable chunk of money to cover up the same. Nonetheless, that’s not where it ends.
Besides, you’ll also need to hold more cash to take care of unexpected repairs properly. In addition, it may also help you with tackling the reduced rental income owing to a higher than usual vacancy rate.
Requirements To Follow While Purchasing A Property
If you are considering taking an agency loan, it will either be all about an adjustable-rate mortgage or fixed-rate mortgage. Both of these alternatives come with specific requirements when it comes to credit scores and down payment. Here’s what you need to know about it.
Credit Score And Down Payment
If you are considering taking a fixed-rate mortgage, you will have to keep a minimum credit score of at least 620. In this case, paying around 20% of the down payment would be enough.
Conversely, if your credit score is swaying somewhere over 720, you will only have to provide 15% of the investment money. However, for an adjustable-rate mortgage, the minimum credit score will be only 620. Also, with it, you have to pay only 15% of a single down payment.
Aside from down payment, the requirement for an investment property would be somewhat similar to a primary residence. However, in this case, you will still need to follow the same 2-2-2 rule, which entails –
- Two years of tax returns.
- Two years of W-2s, and
- Two months of bank statements provided to your mortgage company.
Aside from this, you will also need to verify your assets and keep all of your documents in the right place. The mortgage provider might also ask you to offer six months of payments to give you some room to buffer. It may help you tackle an unexpected financial problem if something as such arises.
When it comes to purchasing your very first investment property, you’ll have to work on various variables altogether. Hence, before you get started with your job, we will ask you to do your research and follow through the same properly.
For example, you can start by checking out the housing price and the neighborhood properly. Beginning to save for the down payment should be your primary concern as well.
Once you feel like you have become capable enough, you can start your journey by getting pre-approved for a mortgage. Doing everything step-by-step procedure should be ideal in making your job much easier than usual.