Don’t Be Scared
Real Estate Investor Questions Answered
It’s October. The month when ghosts and goblins appear in neighborhoods everywhere on the night of October 31, ringing doorbells and asking for candy. Sometimes the costumes are obvious. A pirate. A witch. A ghost. But sometimes you have to ask, “What are you supposed to be?”
Getting into real estate investing can also be a bit scary for the first timer. And there are questions. For those budding real estate investors, here are some of the questions you most likely have and might be afraid to ask. But don’t be. It’s not as scary as you think.
How much do I need for a down payment? Most conventional loan programs ask for at least a 20% down payment with a slightly better interest rate with a down payment of 25%. You can also expect typical closing costs associated with getting a mortgage, regardless if you plan to live in the property.
Are the rates higher for a rental property? Yes, but not by much. With a 30 year fixed rate loan, you might expect the interest rate to be about 0.25% higher than one for a primary residence.
Is a vacation home considered a rental? No, a vacation home or a second home is not considered a rental property and rates are a bit better as well as a lower minimum down payment. If the property is rented out for more than two weeks per year, it’s considered an investment property however.
Can I use the rental income to help me qualify? Yes, but only if you’ve owned rental properties in the past for more than two years. Lenders want to see that you can handle the additional monthly payments along with associated property taxes, insurance and maintenance. After the first rental, you can then use rental income from the property to help qualify.
Who pays the utilities? That’s completely up to you. Your lease agreement should clearly spell out who is responsible for what such as electricity, water, gas and cable. Most experienced landlords like to have the tenants be responsible for all utilities yet some pay for them as an incentive to rent the unit.
How do I know if it’s a purchase is a good deal or not? Your real estate agent can help you with that one who will help craft the right offer. With a rental, you want to make sure the unit has a history of occupancy with no extended periods of vacancy as well as the rent more than covering the mortgage payment, taxes, insurance and maintenance. You want a positive cash flow each month, not an additional expense.