Here’s How to Be a Mini-Trump
Love him or hate him, you have to admit Donald Trump has a knack for real estate. If you’re a Trump, just like that insurance commercial, “That’s what you do!”
Real estate has long been a method to create wealth over time and if you’re thinking of buying your first investment property, here are seven tips you need to know well before you make your first offer. Just the start for becoming a mini-Trump.
Rates and Terms
Down payment requirements as well as interest rates are higher compared to a primary residence. You can expect to put at least 20 percent down in most instances although there are programs that offer 10 percent down albeit with slightly higher rates.
Hey, it’s your hard-earned cash and you’re going to give it to a mortgage company. Don’t put down more than you have to. Leverage somebody else’s money with these low rates in today’s market.
Speaking of rates, you can expect an investment property to have an interest rate anywhere 0.25-0.50% higher.
Want to Be a Landlord?
Remember when you rented your first apartment? Who did you call when there was not hot water? That’s right, the apartment manager. When you’re a landlord, you’re the one who gets the emergency calls when the sink backs up.
Often right when you’re in the middle of your swing on the back nine or you’re about to sit down for a fancy dinner. Your tenants could care less that you’re about to sit down for that dinner when their toilet explodes.
Cash Flow is King
The property absolutely must cash flow otherwise it’s an expense, not an investment. Your real estate agent can tell you what a potential property should rent for but don’t forget about property taxes, insurance and maintenance costs. If it don’t flow- don’t go.
The First is Harder than the Second
Doing something for the first time always brings surprises but when buying your first investment property your lender typically won’t count the potential rental income to help qualify.
For your first investment property, you’ll need to be able to afford the new payments and costs without the benefit of rental income.
After the first one is in the bag and you can show you have landlord experience, at that point future rental income can in fact be counted.
Get Your Finances in Order
This applies to any real estate transaction but with investment property you’ll be scrutinized just a bit more. Better credit, more down payment and qualifying income need to be ready.
Speak with lender in advance about what you’re going to do and when and your lender will provide you with details on how to spruce up your financial picture for a smooth approval process. Once you’ve done your first, it’s all downhill from there.
Finally, don’t think you have to already be a real estate magnate in order to get an investment property loan. That’s along the lines of “Banks lend money only to those who don’t really need it.” That’s hogwash.
Just prove your income and cash in the bank and have decent credit. It’s just like when you bought the home you’re living in now. So chill. And go make that offer.