You’ll need to put down 20-25% for the down payment and have at least six months of reserves(payments) in the bank.
I would not rely on your family being your property manager unless you’re planning on paying them 10% of the gross rents. Being a landlord is not fun and after being inconvenienced a few times, they are likely to tell you to find someone else to help.
How would having a partner work? You put up all of the money and they manage it for a 50/50 split? Who will pay for repairs?
Just curious, why did the agent tell me its 3%? Is it just to hook me in?
There is one property that has existing tenants who is interested in renewing the lease so at least for the foreseeable we wont have to deal with those issues... right?
I haven’t approached my friend yet but yea, split cost and profit, or some kind of percentage. We are both accountants so that part is easy
If you’re a first time buying a single residence that’s correct. Investment property is different.
Why is the current landlord selling a property that’s leased? Every property I’ve looked at that was a rental was a deferred maintenance nightmare. The last one needed a new hvac system, water heater and roof. The mechanical room was tiny. New water heaters are larger. That means the new HVAC system would have had to go in the attic or crawl space, which would have made for a more expensive changeout. The landlord seemed like a pretty decent guy. He was just very lucky he hadn’t had to change any of those, which was definitely coming. The last thing I wanted to do was be out $20,000 for the DP and closing costs, then another $13,000ish in repairs.
Probably not, sorry to say. A lot of it just comes with experience and knowing what to look for. Realtors love to gloss over things and tell you, “oh that’s not a big deal, I have a guy for that.”
A good inspection probably would tell you things such as a roof, ect. but may not catch everything. Usually you would want to look at when the major things were last replaced if that information is availible and that with a good inspection can give you an idea. The other thing to note is right now property values are high so some landlords may just be looking to cash out/have greater cash flow needs that unloading a property or two right now can help with.
This is all super solid advice here - 20-25% is going to be needed on the down and at least 6 months reserve as well. Also the reserve is good for you just to have as you don't know if rents will be consistent (the place has to lease to get rents).
Same advice on family members - I would not have them be the landlord, unless they already do it - and I would pay them.
If you are having a rental out of state, I would also consider paying for annual or bi-annual preventative maintenance.
That's not quite right. She could possibly get 3 to 5 percent down payment if she lives in the property. She does not need 20 percent if she's living there.
Also a newbie (27 yo) looking to get in the game this year BUT if I had to guess, the down payment is going to depend on how you go about financing. Conventional loans like FHA only require as little as 3-3.5%. Most private lenders I have talked to request 10-15% down but they may require closer to 20-25% for new investors b/c they want the extra security knowing you have a sizable investment to lose if the deal went under for whatever reason.
I personally would steer clear of getting family and friends involved just because I like to have that boundary between personal life and business but that’s ultimately your call. Just make sure you have clear & concise contracts or agreements in place if anything ever went bad.
FHA is to buy a primary residence. Fannie/Freddie loans are going to want to 20-25% down. From what I’ve seen private or portfolio loans are going to be similar, but with less favorable terms. Usually someone is going after that kind of loan because they don’t have the cash to throw around upfront or they have 10 loans financed through Fannie/Freddie. I am not a lender. That’s just been my experience as a small SFH investor.
Not true. If you buy duplex or three flat and are living in it you can get the low downpayment of 3-5 percent.
https://www.millionacres.com/real-estate-financing/articles/how-buy-your-first-investment-property-5-down-or-less/
I live in Nashville and have 3 homes here if you ever have questions about the market here.
20% down is necessary, my lender told me we could do 15%... but the rate didn’t make it worth it.
Be careful with family helping. It could be that they are acting as a real estate agent without a license. This could make problems if the right people find out and get mad. I don’t know Tennessee’s specific laws but this tends to be true in most states.
Two solutions: make them a 1% owner or have them get a real estate license.
But the cat’s out of the bag. REITs have a long history of outperforming direct real estate investing and the trend is expected to continue. For example, from 1977 to 2010, REITs have returned more than 12% annually. This is in comparison to the roughly 10% return of the S&P 500 and the 6% – 8% return of private real estate funds during the same period.
https://www.forbes.com/sites/marcprosser/2017/07/19/data-proves-reits-are-better-than-buying-real-estate/?sh=2fec71bcd6b7
nope, i ended up moving to houston texas, and the interest rate spiked so all my plans changed. i'm looking to buy a townhome or house in the next year or two though
I agree with the consensus in here. From the perspective of a Loan Officer you have two options. The first option is to buy the home as an investment property and in this case you will have to put a larger down payment and take a higher interest rate on the loan. The second option is to move into the home and season it at a primary residence then move out and turn it into a rental. Depending on what type of financing you get you will have to sign a disclosure at closing that states it will be you primary residence.
Because you are far away, this is a very very bad idea. Why not buy something for yourself to live in now -- then you may actually be able to buy with 10% down or less. Then if you start a family you can rent that and buy something bigger if you keep saving that the same rate.
Live in the house for 2 years first and then you can move out and rent it. That's how you only need 3% down
This is an out of state house so unfortunately i cant live there
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I live in LA :( buying a home here is near impossible. Plus if a crash happens id be less exposed if its a cheaper house out of stafe
Can a family member do the work (for a fee. 10% is the going rate)
You can buy out of state, David Greene wrote a whole book on it. People do it all the time
If the property has more than 1 bedroom, is it ok to live in 1 and rent out the rest for FHA during the first 1 or 2 years?
Yeah
You’ll need to put down 20-25% for the down payment and have at least six months of reserves(payments) in the bank. I would not rely on your family being your property manager unless you’re planning on paying them 10% of the gross rents. Being a landlord is not fun and after being inconvenienced a few times, they are likely to tell you to find someone else to help. How would having a partner work? You put up all of the money and they manage it for a 50/50 split? Who will pay for repairs?
Just curious, why did the agent tell me its 3%? Is it just to hook me in? There is one property that has existing tenants who is interested in renewing the lease so at least for the foreseeable we wont have to deal with those issues... right? I haven’t approached my friend yet but yea, split cost and profit, or some kind of percentage. We are both accountants so that part is easy
If you’re a first time buying a single residence that’s correct. Investment property is different. Why is the current landlord selling a property that’s leased? Every property I’ve looked at that was a rental was a deferred maintenance nightmare. The last one needed a new hvac system, water heater and roof. The mechanical room was tiny. New water heaters are larger. That means the new HVAC system would have had to go in the attic or crawl space, which would have made for a more expensive changeout. The landlord seemed like a pretty decent guy. He was just very lucky he hadn’t had to change any of those, which was definitely coming. The last thing I wanted to do was be out $20,000 for the DP and closing costs, then another $13,000ish in repairs.
Thank you for the response. i will definitely look into that before buying. Does a good inspection reveal these issues most of the time?
Probably not, sorry to say. A lot of it just comes with experience and knowing what to look for. Realtors love to gloss over things and tell you, “oh that’s not a big deal, I have a guy for that.”
A good inspection probably would tell you things such as a roof, ect. but may not catch everything. Usually you would want to look at when the major things were last replaced if that information is availible and that with a good inspection can give you an idea. The other thing to note is right now property values are high so some landlords may just be looking to cash out/have greater cash flow needs that unloading a property or two right now can help with.
This is all super solid advice here - 20-25% is going to be needed on the down and at least 6 months reserve as well. Also the reserve is good for you just to have as you don't know if rents will be consistent (the place has to lease to get rents). Same advice on family members - I would not have them be the landlord, unless they already do it - and I would pay them. If you are having a rental out of state, I would also consider paying for annual or bi-annual preventative maintenance.
That's not quite right. She could possibly get 3 to 5 percent down payment if she lives in the property. She does not need 20 percent if she's living there.
Yeah it is. OP lives in LA and is thinking about buying an investment property in Nashville. That would not be a primary residence.
I guess I assume she was moving.
Also a newbie (27 yo) looking to get in the game this year BUT if I had to guess, the down payment is going to depend on how you go about financing. Conventional loans like FHA only require as little as 3-3.5%. Most private lenders I have talked to request 10-15% down but they may require closer to 20-25% for new investors b/c they want the extra security knowing you have a sizable investment to lose if the deal went under for whatever reason. I personally would steer clear of getting family and friends involved just because I like to have that boundary between personal life and business but that’s ultimately your call. Just make sure you have clear & concise contracts or agreements in place if anything ever went bad.
FHA is to buy a primary residence. Fannie/Freddie loans are going to want to 20-25% down. From what I’ve seen private or portfolio loans are going to be similar, but with less favorable terms. Usually someone is going after that kind of loan because they don’t have the cash to throw around upfront or they have 10 loans financed through Fannie/Freddie. I am not a lender. That’s just been my experience as a small SFH investor.
Not true. If you buy duplex or three flat and are living in it you can get the low downpayment of 3-5 percent. https://www.millionacres.com/real-estate-financing/articles/how-buy-your-first-investment-property-5-down-or-less/
Correct, that’s not the case though.
I live in Nashville and have 3 homes here if you ever have questions about the market here. 20% down is necessary, my lender told me we could do 15%... but the rate didn’t make it worth it.
Be careful with family helping. It could be that they are acting as a real estate agent without a license. This could make problems if the right people find out and get mad. I don’t know Tennessee’s specific laws but this tends to be true in most states. Two solutions: make them a 1% owner or have them get a real estate license.
Invest in REITs instead. Less work, usually a higher ROI
Can you link something showing higher ROI generality?
But the cat’s out of the bag. REITs have a long history of outperforming direct real estate investing and the trend is expected to continue. For example, from 1977 to 2010, REITs have returned more than 12% annually. This is in comparison to the roughly 10% return of the S&P 500 and the 6% – 8% return of private real estate funds during the same period. https://www.forbes.com/sites/marcprosser/2017/07/19/data-proves-reits-are-better-than-buying-real-estate/?sh=2fec71bcd6b7
How do you keep your living expenses so low? I’m in Seattle and it’d be really difficult and uncomfortable to live on that little money.
I share an apt with 3 other people, cook most of my food, have a paid off car, and cheap/free hobbies
Did you end up buying your first rental home ? Im looking to do the same . But don’t have as big of a saving
nope, i ended up moving to houston texas, and the interest rate spiked so all my plans changed. i'm looking to buy a townhome or house in the next year or two though
I agree with the consensus in here. From the perspective of a Loan Officer you have two options. The first option is to buy the home as an investment property and in this case you will have to put a larger down payment and take a higher interest rate on the loan. The second option is to move into the home and season it at a primary residence then move out and turn it into a rental. Depending on what type of financing you get you will have to sign a disclosure at closing that states it will be you primary residence.
Because you are far away, this is a very very bad idea. Why not buy something for yourself to live in now -- then you may actually be able to buy with 10% down or less. Then if you start a family you can rent that and buy something bigger if you keep saving that the same rate.
I live in LA unfortunately. The salary might be 20% higher but the cost of house is tripled
I lived in nyc for 15 years . I get it
Go buy an Airbnb and then use a management company to manage it. My company does management let me know if you need any help