Many people are interested in Real Estate Investing. This week’s tip I go through some concepts to know when considering investing in real estate.
1. Land versus homes, the beauty of investing in homes is you can rent and off set monthly costs. Most of the time land is speculation and will cost you monthly.
2. Condos versus single family. Single family homes are your best bet. Condo’s have associations which can fine, access, increase fees and prevent future financing from selling your unit.
3. Financing, to obtain an investor loan you will need 20% down, a 680 fico score and a 2 year income and employment history.
4. Second homes, you may want to invest in a second home. It will need to be 50 miles from your primary residence and you will have to qualify with both payments. This is not a rental property.
5. Closing costs, most investor loans will only let the seller pay up to 2% of your closing costs.
6. Renter pool, think of who can rent, like a pyramid with the lowest rents being at the bottom. Because more can rent, its easier to rent faster. Homes under $100,000 are easy to buy and rent later.
7. Flipping, buying a home for $50,000 and selling for $80,000 in less than 6 months is flipping. Lenders do not like flippers and you will find that financing will get tough as you go on.
8. Creative financing, when banks turn you down you can borrow from private parties. The fees and rates are high, but if you still pencil out a large profit it still makes sense. Make sure you always have pre-negotiated extensions in place.
9. Property managers, will screen and collect the rents for you. They charge a monthly fee sometimes $100 a month or 10% of the gross payment.
10. Taxes, the IRS looks at a rental property just like a business. It’s important to claim the rents on your tax returns. The form is the Schedule E and will help you when you want to buy more or your personal property.
