When it comes to buying a real estate investment property, the first deal is the hardest. We know this from personal experience. We know that financing your first investment property can be daunting. But as they say, it’s usually the things we don’t do that we regret later in life. So if concerns about financing your first property are stopping you from getting started, here are some tips:
Check your credit early for mistakes and items you may need to address. Once you review your credit report, do not take any drastic action without first consulting with an expert. In particular, don’t close old accounts or pay off collection accounts right before trying to get a loan. Either action may hurt your credit score rather than help it.
If you are not eligible for a loan based on your credit or other qualifications, look for an investor partner to go in on the property with you. There are many others out there wishing they owned more real estate who lack the time and/or expertise to find and buy property. There are also “hard money” or private loans for good deals. The interest rates are high but can be worth it if you can refinance or sell the property in a relatively short period of time.
Decide What You Are Buying
All things being equal, second homes may offer better financing, but it will depend on where the property is located and what you intend to do with it. Talk with your Loan Advisor about how you plan to use the property to decide whether it would be better to buy a second home or an investment property. It’s never a good idea to stretch the truth on applications. If you are buying an investment property, call it what it is. Whatever you do, don’t buy a property where someone talks you into saying you will live in it when you won’t. There are illegal scams that solicit “straw buyers,” and these can get you into hot water.
Understand the Numbers
Investors have different goals. Some want to buy a rehab property, fix it up, and sell it quickly for a big profit. Others specialize in pre-construction, which means they put a contract on a home or condo in a development before it is built and then sell it for a profit, sometimes before they complete the purchase! Others will buy a home they can rent out, and are happy to break even or make just a little money each month, expecting appreciation to be the pay off. Still others want to buy a vacation home in an area they want to visit. They may use it from time to time and rent it out the rest of the year for a profit. Whichever approach you decide to take, make sure you understand the numbers, including the cost of financing, a down payment, advisor fees, repairs, etc. Be realistic about whether you can afford to make the mortgage payments for as long as it may take to find a buyer or a tenant.