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LDEXTER,  in 55378

I am looking into buying an investment property for the purposes of holding onto for awhile and renting out. I am thinking I should be ready by this

Asked by LDEXTER, 55378 Fri Jan 7, 2011

spring at which time I should have saved enough to put 20% down, as I believe that I would not be able to get a loan otherwise. I have pretty good credit. I know lenders are tougher on investment properly loans but was wondering if anyone thinks this is "do-able". Im trying to get an idea if I should be able to qualify to "plan ahead" for when I am actually ready in a few months. Also how much higher are the rates on investment loans versus owner occupied? Any input is appreciated. Thanks.

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Hi Leah,
Many good responses so far. I wanted to add that there is also a loan program that allows investors that are specifically looking to hold an investment property as a rental to actually finance up to 100% of the purchase price AND include costs to rehab a property. They will use the future repaired appraised value to determine your equity position and lend up to 65% of that future appraised value. This is a conventional loan product and qualifying would be based on the typical underwriting guidelines that standard conventional finance uses. Saving up 20% is a great way to plan as well however -this other option would just offer the advantage of having available funds for renovations as well! Loan programs do change quite often these days, so if this is something you have further interest in let me know and I can verify if this program has undergone any changes recently as I have not worked specifically with this lender as of late - but I can double check for you.

One more thing I have not seen mentioned in previous responses is a rental maintenance factor. Some first time investors choose to start small such as a condo or townhome that they don't have to worry about exterior maintenance and often times utilities would also be managed by an association and save you the hassle of dealing with those items. If you consider a condo/townhouse option it is important to verify that the association does allow rental units as well as verify that the association is solvent with strong financials, budgets and well maintained. And if you are looking to hold onto an investment property for a while that would hopefully also offer time for market improvement to alleviate any resale concerns.

Many good options and low prices out there now to take advantage of! Good luck in your endeavors and hopefully you find just what you are looking for!

Jennifer H
Broker Associate
Minnesota Realty, Inc.
1 vote Thank Flag Link Fri Jan 7, 2011
Great questions Leah. If your working with an Realtor already, they should have some lenders that would analyze the specifics of your financial situation appropriately. Planning ahead and educating yourself on all aspects of this investments is a very good idea. Make certain you are being represented by an agent that deals with short sales and foreclosures as well as investment properties. Ask them questions such as: have you listed bank owned properties and short sales? How many homes have you sold in the past year 5 years 10 years etc and how many homes they show to they're average buyer. Do they work nights, weekends etc. Do they own any rental properties themselves. These are just a few tips, call or email me privately and I will be glad to give you the complete low down on what you should be doing ahead of time to prepare your self for this exciting endeavor.
1 vote Thank Flag Link Fri Jan 7, 2011
Wow, Leah, tons of great answers here. I can only reiterate, make sure you're ready for the WHOLE package of things that you need to know and do before you get started. You've already begun well by asking about the mortgage piece. That's the most important first step. From there, find an agent who "gets" you and your tastes, your process, etc. Once you've found a property, make sure you're willing to back up your investment with commitment, meaning the property has to be cared for and managed in order to attract qualified renters.

Any questions or requests for referrals for lenders, insurance people, property managers, let me know.
0 votes Thank Flag Link Thu Jan 13, 2011
You've had a lot of great answers! However, there is more to it than just the acquisition. Owning an investment property and operating as a landlord takes more than just the acquisition capital. I believe you should consult a good financial advisor to determine the proper amount of capital in reserve you should have in addition to the acquisition capital. And create an investment strategy for your property. Then consult with a good Real Estate professional to seek out the property that best fits your scenario.
0 votes Thank Flag Link Fri Jan 7, 2011
Save your money. Get pre-qualified about 6 weeks before you are ready as your pre-qual is only good for 45 days at the most. Interest rates go up and down all day long and the policies change all the time. It is difficult to say what your interest rates would be tomorrow let alone 4 months from now. Sometimes the rates on investment property is about the same as the rates for primary homeowner. It really depends on the date. When you get pre-qualified, lock in your interest rate. Speak with a professional in the mortgage industry when you get closer to the ready stage.
0 votes Thank Flag Link Fri Jan 7, 2011
I can get you a loan for your investment for 10% Down and at a 5% interest rate fixed for 30 years.

Please call me or email me for more info: (214) 293-1831 or SarahMontesKW@gmail.com
0 votes Thank Flag Link Fri Jan 7, 2011
Hi Leah,
This is not only definately "doable" but this may be one of the greatest times/opportunities to invest in real estate we've seen for awhile if you're able - and it's good you are looking ahead to address any variables.
You will most likely need to put 20% down, give or take, and your interest rate on an investment property will also be higher - typicallly about a % point higher than conventional rates as a good rule of thumb.
My team, The Minnesota Real Estate Team, works with many investors and also offers free, monthly seminars on this topic. Please feel free to visit our website at http://www.investmentpropertyguys.com for our monthly seminar schedule and additional resources on the process.
Most importantly - you should be sure to get pre-qualified and find a real estate professional that is willing to help you determine your objectives and find a good investment based on your goals. Best of luck.
Lise Siegel
0 votes Thank Flag Link Fri Jan 7, 2011
Everyone did a great job of answering your question here. The other thing to consider is how much work are you willing to do once you buy before you can rent. The more you are willing to take on, the lower the price, and the lower amount you will need to save. Also, location can make a huge difference in what you can afford. The Twin Cities has several pockets that have maintained there value while others have dropped dramatically. Check out this web site as it can help you determine the upside on various homes.
0 votes Thank Flag Link Fri Jan 7, 2011
Why not consider Phoenix for your investment? Property values are low, with lots of potential upside and a great rental market. We have a lot of people who lost their homes and cannot get a mortgage so they need to rent. They do not want to lose their home again, so they make great tenants.

And you can take a trip here evry yera to check on the home and write it off!
0 votes Thank Flag Link Fri Jan 7, 2011
Leah -

I work with a lot of buyers in your same position looking for investment properties with financing. The lender that I work with a lot has products that require 20% but some require 25%. If you have planned ahead and have 20%, you should be in a good place. I would suggest starting the conversation now if you plan to purchase in the spring. That way, you will know where your financing is at. To answer your question, yes - it's do-able. This is a great market to be buying an investment property. Prices are down and mortgage rates, while a bit higher than owner-occupied loans, are good. The last loan that I saw compared was .5% higher. Of course, you will have to run your info to know exactly. I will leave that up to the mortgage pro's.

There are some things you want to keep in mind when buying a property for this purpose. The area is important. It always is, but you want to buy in a "buzz" area to be sure you can keep it rented. You also want to watch your budget to be sure that, after your costs, you don't have to charge a rental rate that is overpriced for the area. Finally, you will want to have some cash on hand to potentially make some updates to the property that you choose. With foreclosures and short sales being price so well right now, you want to take advantage of these purchase prices but plan to do a little work to make it rent-able. I just always want to make sure my clients aren't shooting themselves in the foot when buying an investment property. The last thing you want is to buy something, get it ready to rent, and then sit on it for months - losing money.

If you would like any further advise or help with your search, I would love to be available to you. Contact me anytime.

Brad Fox | Broker | Realtor

Dwell Realty Partners
C: 612.685.3890
O: 952.473.1716
0 votes Thank Flag Link Fri Jan 7, 2011
Leah, you already have some great answers. I just wanted to add that 20% down may be the smallest down payment a lender will accept on an investment property. Depending on some details they may want 25-30% down. This is a great time to buy an investment property. Good luck and make sure you do a lot of research before buying.
Web Reference: http://www.lennyfrolov.com
0 votes Thank Flag Link Fri Jan 7, 2011
Hi Leah,
Great job in planning ahead and making sure you are in the right position when you are ready to purchase that investment home!
The first one can be scary, and you really should do your research so you know just what you are getting yourself into.
Just a though, but you may want to look into a less expensive rental for your first one for a couple of reasons. The first one being that your payment would be less in the case of a vacancy. It makes the risk a little more bearable that way. The second would be that with a less expensive property, comes a lower down payment. I am a big believer in money in the bank. I think you should plan on having some solid reserves if you are going to be buying a rental property, just in case there is a vacancy or if something would break in the property.
There are a lot of properties out there right now for some really low prices. Maybe taking a look at some of those as well may be worth the trouble.
Certainly let me know if I can be of any help.
Brian Amiot
Sorenson Realty
Web Reference: http://www.brianamiot.com
0 votes Thank Flag Link Fri Jan 7, 2011
A lot depends on your credit rating & the type of property you buy. If you plan to occupy 1/2 of a Duplex & rent out the other side, that is different from buying an apartment building or a little commercial property. Rates can vary 1-2% (or more) & are driven by your credit rating, the property & the amount of downpayment. Speaking with a lender now, as opposed to when you think you are ready, or even worse, after you have selected a property, can help you focus on what you really need to do. Some of the things might include:
- Save more
- Pay off Debt
- Write letters of explanation
- Get experience as a Landlord
Additionally, I would suggest you consider what you are & aren't willing to do as a property owner. Will you shovel / mow grass? Will you manage background checks & rent collection? Can you repair a wall that has had careless movers impale a coat rack in it?
Lastly, how far are you willing to be from your job / home to deal with property management? How long will you be able to sustain yourself if you have non-paying tenants or vacancies? And if you buy a "Fixer", will you have to rely on contractors or will you do the work yourself (& do you have the time)?
The Attorney General's office has some great information that you can download about being a Landlord. These steps will prepare you for the journey you are taking. They will encourage the REALTOR & Lender that you employ that you are serous. And You will have a more successful career as an investor.
0 votes Thank Flag Link Fri Jan 7, 2011
I think it's great that your thinking ahead and I think it's a great idea to be buying an investment property now. I would say take the time to talk with a loan officer now, they can educate you and let you know what needs to be done before you buy. Depending on the areas your looking to buy in, there are some great deals out there plus alot of people looking to rent. The rental market is good right now because of the people who can't get a loan because of different reasons. Use a loan officer who has been referred to you so you know who your doing business with. I have a few of them that I would be happy to pass their into onto you.
0 votes Thank Flag Link Fri Jan 7, 2011
Hi Leah. I think it's great that you are saving enough money to put 20 % down. You may want to make sure you are working with a lender that understands investment buyers. If you have not already spoken to one, I can refer you to someone quite reputable who purchases investment properties on his own. He even rents some out once he's fixed them up.

Now's a great time to purchase foreclosure homes or HUD homes. Some of us agents have more experience than others with this. You may even want to consider purchasing homes that are for sale in a short sale situation. The wait is longer for responses from banks, but the wait just might be worth it. When choosing a real estate agent, select one with the CDPE designation. CDPE is Certified Distressed Property Expert. CDPE agents have the training to assist buyers and sellers with short sale transactions.

Let me know how I can assist you with your real estate needs.

Gina Schedivy
RE/MAX Results
Web Reference: http://www.gowithgina.com
0 votes Thank Flag Link Fri Jan 7, 2011
Hi Leah,
It is for sure doable and of course much has to do with the details. Often a lender will take 75% of the income ( rent) from the property being purchased and add that to your income to help you qualify. The rate difference depends on your debt to income ratios and overall scenario though .75% to 1.5% is a ball park.
Just know that some lenders require 25% down for investment properties, not always just 20%.
The best thing to do is to talk to a loan officer asap. Within 24 hours you should know whether your plan is doable with your specific situation. Good luck to you and feel free to contact me with any more ?'s :)

Alex Goldfarb/Boardwalk Realty
0 votes Thank Flag Link Fri Jan 7, 2011
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