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Selling Your House Safely During A Pandemic

(Published on - 6/29/2020 3:16:24 PM)

Close person-to-person interaction is something people should avoid during this pandemic and it will certainly become a part of the "new normal" even after cities and countries are marked 100% clear from the virus. Shops, restaurants, and many businesses are greatly affected by this change.

This includes the real estate industry.

Although many state governors ruled that real estate was a necessity, some buyers and sellers put their plans on hold when the pandemic started.

Many leases were dropped, in-house viewing was canceled, contracts were left unsigned, and constructions were put on halt; these are just some of the negative impacts on real estate business brought by the pandemic. Nevertheless, there are still many distinctive ways to sell a home during a pandemic. Here are some of the things to keep in mind and follow when selling a house during this period:

Limit In-person showing
Taking good photos of the different parts of the home was the norm before. At this time of social-distancing, one must take it to the next level. To limit the contact or close encounters with people, taking clear videos of the spaces they are trying to sell is a good alternative as others don't prefer just seeing still images. This allows the buyer to walk through the house virtually.

Some buyers still prefer in-person showing. If this is the case, set rules beforehand. Let the potential buyers know what to do before entering the house, such as leaving shoes outside, Wearing a face mask and gloves, limiting or not touching anything in the house, and using hand sanitizer before entering the house.

Virtual showing
Aside from high-definition photos or videos, having virtual tours is an innovative way to show houses. Conducting in-person showings run the risk of endangering the seller, the potential buyer’s, and the Realtor’s health. Some have done 3D tours wherein 3D photos of the rooms were taken, and interested buyers can view the rooms just by swiping or toggling the photo to the right or left.

Virtual tours can also be done via video calls. Facebook Live and Zoom meetings can be used to show the seller’s house to interested buyers without making any physical appearances.

Limit on-site inspections and appraisals
Inspections are part of the many processes before one can sell a house. In this process, some agree with just seeing photos or videos. However, many still want to inspect and appraise in-person. Similar to in-person showing, make sure to agree on rules before the beginning of any transactions. If possible, limit the number of people to come as well. And after the inspection, make sure to clean and disinfect thoroughly.

Remote home closing
Some areas are open to doing remote home closures. With this, limiting the number of people attending a closing is a good step toward limiting direct contact. If remote home closing is allowed or doable, send the necessary information and files online, and make sure that both sides can receive and reply to messages promptly to avoid any delays or misunderstandings. Many states for the first time ever are allowing remote Notary signing under specific rules and regulations. These mobile notaries are the ones moving from one place to another instead of the buyer or the seller.

The pandemic has certainly shaken the economy. It has also brought about a lot of major changes in dealing with several businesses. Nevertheless, selling a home during this time can still be done successfully as long as all parties involved adapt to the changes.

For more specific guidance on selling your home during this pandemic, please call Realty Executives Exceptional Realtors® at (866) 742-5732 or email us at ClientCare@RealtyExecutives.com.


The Trend Is From Cities to the Suburbs

(Published on - 6/15/2020 1:21:09 PM)

The coronavirus pandemic has changed everything. From the way that Americans work to the way they shop, times are changing, and some people think that many of these lifestyle shifts will remain even when COVID-19 is long gone. Real estate pros, for instance, have already noticed one major trend—Americans are reconsidering where they live. So far, there’s been a major push out of more densely populated areas as individuals and families alike consider the suburbs, instead.


Why the Drastic Changes?

This all began when large numbers of people began to abandon their living spaces in crowded urban areas, where COVID-19 was more prone to spread from person to person. Instead, these folks found refuge with friends and family members in the suburbs. Many have chosen to purchase homes further away from the chaos in an attempt to prevent themselves from falling ill.

There’s the CDC’s recommendation for social distancing to thank—in the suburbs, small, enclosed areas like shared public transportation, bodegas, elevators and laundromats are much less common. Social distancing becomes easier even when simply walking on the sidewalk or browsing for essentials in corner stores.

Many families are finding solace in homes with far more square footage than their city apartments. And with more space, the current trend of working from home can be productive and enjoyable. People who never thought they would leave the cities are discovering new priorities and are enjoying their new lifestyle. The trend is moving from high priced apartments homes with extra space that can be used for such things as yoga or peloton rooms. They’ve recognized that they enjoy having yards full of grass, opportunities to garden that aren’t limited to a windowsill, and the convenience of having larger stores for groceries and other necessities.

Unfortunately, the high demand for suburban escape is already leading to a limited housing inventory that’s been further driven by unprecedented, historically low mortgage rates. Suburban area Realtors are reporting record low inventories causing numerous multiple bid situations on homes listed for sale.

With markets moving, economic uncertainty looming (including an all-time low rate of wage growth in April), and demand increasing for suburban space, making the move from the city could continue to become more challenging.

Marketing Suburbia

To accommodate the movement from urban to suburban, Real estate experts have made their own adjustments to the way that they’re helping interested parties find and view homes.

Digital platforms that encourage virtual home tours and open houses as well as virtual buying and selling programs are likely to remain popular as the United States continues to navigate the pandemic and prevent the high possibility of a second peak that will come with the reopening of public spaces. So far, it seems a good compromise, but only time will tell how the real estate market trends will continue to change along with the pandemic.

For assistance in navigating your move from the city to the suburbs, contact the experts at Realty Executives Exceptional Realtors® at (866) 742-5732 or email them at ClientCare@RealtyExecutives.com. If you are ready to find your suburban dream home, they would love to assist you.


How to Choose the Best Realtor to List Your Home

(Published on - 1/30/2020 6:46:11 PM)

Selling a house can be a daunting task for any homeowner—knowing the right price to ask, preparing the house for sale, advertising and marketing the home, showing it to interested parties, negotiating the purchase price, dealing with the inspection issues, and preparing to move to another location are only some of the things homeowners will have to do in order to find success.

No wonder so many homeowners hire a real estate agent to list and sell their home!
Choosing to work with a real estate expert is a smart idea. Before turning over the sale of their home to a local listing agent, every homeowner should take their time to choose the best agent in their area.

Thankfully, there’s some good news for those homeowners. We have outlined below key questions that will need to be answered during the interview process.

These questions can be answered by scheduling an interview with a Realtor® or by doing a bit of internet sleuthing. Homeowners will definitely want to pursue both routes in order to gather as much information as possible before making a decision to hire an agent.

Does the agent have a good working knowledge of the local housing market?

In some parts of the country, as little as a one-block walk up the street can mean a $100,000 difference in listing price. 

In neighborhoods like these, where value fluctuates so drastically with only a small change in location, a Realtor® will absolutely need the finesse that comes with neighborhood expertise. Without this intimate knowledge of the local market, a Realtor® will only flounder when attempting to market and sell a home at an appropriate asking price.

Plus, Realtors® who are very familiar with the local real estate landscape will be better equipped to recommend a home for sale to their currently searching clients. This vastly increases the chances of serious inquiries soon after a home has been listed.

What does the agent offer as part of their services?

Not all Realtors® are created equal. Some, called full-service agents, offer extensive marketing packages in their rates, meaning that they will take care of all the advertising that’s necessary to sell a home with the utmost efficiency. With the breadth of services offered by these agents comes a full commission cost, however, usually between 5% and 6%. Full-service agents typically work for larger real estate companies such as Realty Executives.

Discount agents, on the other hand, charge less commission but offer fewer services than their full-service counterparts. Homeowners who choose to list with a discount agent will find themselves with less robust marketing packages to choose from. In addition, many discount brokers will require that the homeowner complete many of the tasks that a full service brokerage handles.

In the case of uncertainty, homeowners should ask upfront about an agent’s rates and services—it's basic information like this that builds a foundation to ask more complex questions.

When researching available services and comparing real estate professionals, homeowners can also use this opportunity to brush up on the differences between real estate certifications. There is, for example, some distinction between a real estate broker and a real estate agent. Brokers will have a higher level of education, and in some cases experience. 

Generally, homeowners can accomplish their goals equally well with either brokers or agents, but some may have reason to prefer hiring a real estate broker with a greater depth of knowledge and expertise.

Does the agent seem interested in learning about the unique needs of their clients?

This question is best answered on a one-on-one basis through an interview. A Realtor’s® mission statement online can wax poetic about passionately meeting the needs of each and every client, but the most genuine answer will become obvious during a more personal discussion.

Homeowners can benefit greatly from being forthcoming about their concerns during interviews with real estate agents because there’s a lot to be said for an agent’s response to an out-of-the-ordinary request. An agent who is willing to go above and beyond for their client will be quick to offer guidance or ensure that they will make appropriate inquiries to answer unique questions and meet unusual needs.

Real estate agents who seem uncomfortable with the idea of deviating from their routine for the sake of a client’s concerns are likely not the best choices for hire.

How much experience does the agent have?

This isn’t to say that a new Realtor® can’t do a great job and promptly sell a home for a stellar price, but there is something to be said for years of experience and a proven track record of success. Sometimes, it’s easy to gauge experience from information gleaned online. When in doubt, it’s never a bad idea to ask a Realtor® under consideration for references from past clients.

Giving those references a call can yield incredibly valuable insight into a Realtor’s® past work. Plus, this provides an opportunity for a candid discussion about the services offered by the Realtor®, the client’s satisfaction, and a review of how smoothly the negotiations proceeded.

More specific questions about experience can be asked during an interview.

Does the agent have a strong online presence?

U.S. News discusses how the internet has drastically changed the way potential homeowners search for listings and demonstrate interest in a home, making the way that an agent markets their inventory online all the more important.

Luckily, this is one question that can be answered easily with a quick internet search. An agent with plenty of hits on popular search engines will have a wide reach to potential buyers who are searching for homes in the area. A wide reach means more inquiries, and more inquiries mean the possibility of more competitive offers!

Maintaining a well-kept social media presence also suggests professionalism and transparency, both of which are critical qualities for an agent to be successful in their field. Quickly scanning any social media profiles can say a lot about an agent, too, so homeowners shouldn’t neglect this opportunity.

What does the agent’s current listing inventory look like?

There’s something to be said for balance here. While a homeowner might be wary of an agent with very few listings, an agent with many listings which have been on the market for some time could be indicative of a bigger problem. Sure, a stubborn property crops up every now and again that even the most talented agent has trouble selling, but when an agent’s inventory is full of unmoving properties, the homeowner may want to prod a bit further.

A small inventory, on the other hand, may mean that the agent will be more available to provide thorough time and attention to a new listing, but it could also be indicative of fewer homeowners wanting to list with the agent.

Also, homeowners should take this opportunity to double-check the characteristics of the other properties in an agent’s inventory and prepare for a bonus follow-up question: Has the agent been successful when selling comparable homes (in the same price range and in similar neighborhoods)?

Does the agent have any reviews?

At the end of the day, Realtors® are only human—this means they can’t please everyone! One or two bad reviews amongst a sea of positive accolades is probably not a reason for concern. The negative reviews should still be taken seriously by all means, but reviews are more useful as a general overview rather than a damning sentence.

Similarly, homeowners on the hunt for the best Realtor® would do well to be wary of agents with nothing but five-star reviews. Again, balance is key. Maybe it’s true that a Realtor® has had nothing but the most stunning performances, but it’s also possible that reviews which seem ingenuine could have been hand-selected from a larger pool of more realistic reviews.

Searching for reviews on neutral, third-party websites is the best way to ensure that the reviews contain nothing but the truth. These third-party sites like Zillow and Google ensure that reviews cannot be removed or altered in any way, whereas reading reviews and testimonials directly from a Realtor’s® website suggests that the reviews have been hand-picked to paint an ideal picture of the agent’s services and past successes.

How does the agent suggest a selling price?

While it’s understandable that many homeowners will gravitate toward a Realtor® who promises to sell their home at the highest price possible while charging the lowest commission, they should pay careful attention to the way that the Realtors® suggest a list price. In reality, it’s not so simple as selling a home for its highest suggested list price. Why? Because a single correct listing price doesn’t exist.

Instead, it’s a good sign if a Realtor® works equally to determine a price range with a homeowner based on the current state of the housing market. A good listing agent will reference recent sales and pending sales of comparable homes, often called a market analysis, then use this information to guide a homeowner toward a reasonable price that they’re happy with.

A real estate agent who knows how to appropriately price a property can be the difference in a home that sells within its first month of listing or a home that stagnates on the market, unmoving and destined for an unfortunate price reduction.

Consider Red Flags

This list of questions is the perfect way to run a quick analysis of any real estate agent under consideration because they’ll help to focus on the positives without also forgetting the negatives.

Sometimes, in the course of discovering the answers to each of these questions, some striking red flags will change the game entirely. Homeowners would do well to avoid hiring an agent who:

Suggests a singular listing price rather than a realistic price range.

  • Has no online presence or has social media pages containing questionable content.
  • Boasts no experience selling homes in the desired neighborhood or price range.
  • Cuts corners on marketing and advertising strategies in order to reduce their own costs.
  • Is not prepared to provide a full market analysis.

Aside from these lists of questions and warnings, there’s one final source of wisdom each homeowner should rely on when deciding which Realtor® to hire—their gut!

Forming a relationship with a Realtor® isn’t so different from any other relationship. Sure, the interactions between a real estate agent and a homeowner are rooted in professionalism, business, home buying, and home selling, but homeowners would be remiss to ignore the basic tenets of communication and connection!

If an interview with a Realtor® yields nothing but bad vibes, think again. A “perfect” resume and robust listing inventory mean little if the agent isn’t personable or willing to work amicably with new clients, regardless of their individual needs and concerns.

If you are considering selling your home, consider contacting Realty Executives Exceptional Realtors® at (866) 742-5732 or email us at ClientCare@RealtyExecutives.com. We will be happy to provide you with a complete market analysis from a professional Realtor® in your market.


How to Best Prepare for Your Home Buying Process

(Published on - 1/15/2020 4:21:45 PM)

The process of buying real estate can be overwhelming, especially if you’re a first-time home buyer. There is a lot of documentation to think about, even before you’ve found the perfect home. From loans to home inspections, investing in real estate takes strategy. So if you want to make sure you navigate the process seamlessly, we’ve got advice on buying a home, made specifically for first-time home buyersRead on to get the key to your home as soon as possible!

5 Steps to Buying A Home

As a combination of financial and sentimental efforts, buying a home can be a lengthy process. There is plenty to think about, and your finances will dictate the kind of home you will get.

We'll cover these basic 5 steps to buying a home in great detail throughout the guide:

  • Establish your criteria and financial possibilities
  • Find the right real estate agent
  • Credit check: get preapproved for your loan 
  • Start shopping for the right home
  • Finalize your loan

Each step comes with a specific to-do list you need to take care of in order to make the very process of moving in as simple as possible. Let’s take a look at each step in detail, and make sure you know what you can expect:

1. Establish Your Criteria and Financial Possibilities for Buying a Home

Buying a home is a significant real estate investment. While that comes as a significant factor for calculating your budget, it is also a factor for planning your future.

Planning Your Future

For example, you may be married, and plan on having only one child. However, you should also account for the fact that your plans may change. You may even get a pet for that child. All of this factors into your ultimate decision. It’s important to consider your plans for the future, which include:

  • Family planning 
  • Retirement planning

You may think that buying a condo in a metropolitan setting is the best plan for you right nowHowever, if you commit to a mortgage that you will be paying off for twenty years, then it’s important to reexamine your long-term plans:

  • Do you plan on having a family? If so, you may want to be in a good school district, or in a gated community. 
  • Do you plan on keeping your job in the long term, and are you choosing your home solely based on its proximity to your workplace?
  • Will your dream home be able to adapt to eventual lifestyle changes?

By the end of this stage, you should have a clearer idea on what kind of home you want to be looking for; not just in terms of bedrooms and bathrooms, but in terms of neighborhoods and amenities. 

Finance

After establishing your criteria for the dream home, it’s important to understand your financial situation.

As a rule of thumb, don’t buy a home unless you’re sure you can afford it. 

This means making sure that you have a portion of your money allocated to a safety fund. Additionally, owning a house comes with plenty of other expenses such as utilities, repairs, and insurance. The ideal scenario would be that you have those hundreds of thousands of dollars in cash. However, that’s not a reality for the majority of us, so make sure that you consult a financial advisor and understand your budget. Professionals can help you understand whether you’d be able to repay your loan comfortably. As a rule of thumb, try to stay in the 25 – 30% range of your gross income. Your mortgage payment shouldn’t be more than that. It’ll ensure that you can repay your home even if the economy goes south. Finally, don’t forget to take into account the debt you may have accumulated, such as student loansAlways budget so you can live comfortably, even if the economy goes south. Your mortgage payments (typically) won’t change, so it’s important that they’re an amount you can work with even if you encounter unexpected financial difficulties.

2. Finding the Right Real Estate Agent

We recommend keeping an eye on the housing market in your target neighborhoods just so you know what kind of prices you’ll be working with. Look for median prices of homes in that area. However, having a good Realtor® on your side is the best way to ensure that you’re not only happy when you buy your home, but even as you start living in it.

Realtors® know a wealth of information about:

  • Neighborhoods
  • Housing prices
  • Sellers’ terms
  • Negotiation
  • The home-buying process itself

How to Find a Realtor® for First-Time Homebuyers

It’s a good idea to consult your friends and family members who recently bought their homes. They might have a Realtor® they loved working with.

In general, a good Realtor® will:

  • Help you navigate the process
  • Be as objective as possible
  • Clear up any misunderstandings and confusions you may have
  • Inform you about the neighborhood and the potential of homes in the market

Make sure you pick a Realtor® who has a proven track record of successSome real estate agents simply want to sell the homes they’ve commissioned. However, you want to find a professional who will ensure that you find your dream home, and that you’re not blind sighted by anything. 

3. Credit Check: Get Preapproved for Your Loan

Before you start looking for your dream home, it’s important to get pre approved for the loan you plan on taking out to pay for it. However, you won’t only shop for a home. You should shop for a loan: meet with a mortgage broker or get in touch with the lenders in your area; small credit unions includedSome of them offer much better terms that will help you secure your home. If you plan on keeping your home for a longer period of time, you should look for a set-rate mortgage. However, if you plan on selling your home within the next few years, you may want to look into ARM (adjustable rate mortgage) where payments go up and down according to the economic index. Typically, ARMs are more flexible, and you could be able to afford a much more expensive home. The caveat is that they are unstable and you could find your payments going up, so it’s all a matter of your personal preferences and needs. 

Home Loan Requirements

Every lender has their own requirements. However, generally, you should have:

  • Good credit – Your score should be higher than 580 if you want to qualify for an FHA loan, and higher if you want to qualify for a regular loan
  • Income that covers the mortgage payment – Lenders want to make sure that you can repay your loan, so they don’t want the mortgage payment to be more than 25-28% of your gross income. However, other debt can influence your lending options. 
  • Enough funds for a down payment – Normally, you’re expected to cover 20% of the price. If you’re getting an FHA loan, you can get by with around 3-5%.

Keep in mind that your mortgage is not just your loan. Your mortgage will also include insurance premiums for your mortgage (if you don’t have at least 20% of down payment capital), property taxes, and the insurance for your home.

Documents you will need for a mortgage pre approval:

  • Tax returns
    • Income statements: W-2s and two recent payroll stubs if you’re an employee. If you’re self-employed, prepare 1099s, yearly profit and loss statements, as well as two years of records. If you have other real estate, prepare real estate income documentation.
  • Bank statements
  • Information about brokerage and retirement accounts (if applicable)
  • Debts: Monthly debt payments (list everything from student loans to credit cards) and real estate debt, if applicable
  • If applicable, records of divorce, foreclosure, etc. 

Calculating Your Interest Rates

Interest rates can significantly affect how much you’ll be paying for your mortgage every month. If you get lower interest rates, you’ll pay off your mortgage sooner.  Fortunately, there are a few ways of ensuring that your interest rate is as low as possible:

  • Have the funds for a bigger down payment
  • Improve your credit score
  • Shop around for loans, and opt for shorter loans

Do I Need Mortgage Pre Approval?

In short: yes. It’ll make the whole home-buying process a lot smoother. When you’re pre approved, you know exactly what kind of price range you’re working with. Additionally, sellers will be more likely to accept your offer if they know you’ve already secured funding. 

4. Start Shopping for the Right Home

At this step, you should have:

  • Clearly defined criteria for your ideal home
  • Information about the price range of your home

This is where mortgage pre approval comes in handy, as well. You can simply shop within the price range covered by your loan.

The most important thing is that you stay within your budget.

First-time home buyers often bite off more than they can chew. They fall in love with a house. So resist the temptation to go above your means, especially as owning a home comes with plenty of costs. 

When you start touring the houses, jot down the information about each house:

  • Size, number of bedrooms and bathrooms
  • The list of other rooms (e.g. Does the house have a laundry room, garage, basement, etc.?)
  • Size of the front yard/backyard
  • Flooring (e.g. Hardwood floors, carpet, etc.)
  • Energy (Heating, insulation, A/C, energy efficiency, etc.)
  • Appliances (Do the appliances come with the house? How old are they?)
  • Other amenities
  • Neighborhood (Schools, parks, public transportation, etc.)
  • Your opinion (What did you like? What did you dislike?)

You can even make a spreadsheet. It’ll be much easier to decide on a home when you have all the information at hand. When touring, make sure you test the water pressure and the electrical system. If the house has a fireplace, get information on how often it’s been maintained. When evaluating the location of your potential home, pay attention to the neighborhood and yes, even appearances. If other homes in your neighborhood are well-maintained, and the neighborhood is safe, it’s another pro to add to your list.

Choosing Your Home

First, shortlist all the homes you’ve toured, and then decide on the top three. 

Keep your long-term goals and financial possibilities in mind. 

Make sure you’re both comfortable with the home and the neighborhood.The price of the home matters, of course. However, if your ideal home’s asking price is lower than prices of other homes in the neighborhood, consult your Realtor®. You may have to invest a lot in repairs. Consult your Realtor® about Homeowner Association’s details. Understand their requirements, as they will impact potential modifications. If you’re not the only one making an offer for the house, ask your Realtor® about other bidders so you understand the state of the competition. If there are no other offers, you could negotiate for a lower price. 

Schedule a Home Inspection

When you’ve decided on a home and the seller has accepted your offer, contact your Realtor® so they can arrange a home inspection. 

Ensure that the home inspector is licensed and insured. 

It is critical that your home inspector is licensed and insured to be sure that he or she knows what they are doing. It’s important to have the inspector evaluate the potential concealed damage of the home (e.g. structural, termites, electrical and plumbing systems, etc.) before you sign the contract. Additionally, if your inspector does find damage, you have the right to ask the seller to repair the issue prior to closing, renegotiate the price or even walk away from the house. However, what ever you and the seller agree to, make sure you have it all in writing. 

5. Finalize the Loan and the Sale

Typically, this is the part of the process where your money and your documents go into escrow with a settlement agent or title company to ensure the paperwork is in order. Your lending institution will send an appraiser to evaluate the home and ensure that the price matches the value of the property.

Once the load is approved and the titlework comes back clear,  you’ll sign the final loan paperwork. This process can take anywhere from 30 to 90 days. However, if you’ve been preapproved for mortgage, passed home inspection, and agreed on a fair price with the seller, you’ll be on your way to moving in no time! It’s time to find your dream home and we would love to assist you.  Please call Realty Executives Exceptional Realtors® at (866) 742-5732 or email us at ClientCare@RealtyExecutives.com.


What to Look For In An Investment Property

(Published on - 1/15/2020 4:13:55 PM)

Investing in real estate can provide a reliable source of additional income if you take your time to select a great property that aligns with your goals, abilities, and budget. Investment properties can yield significant dividends, like tax breaks and equity gains, in addition to the monthly income. If you choose a property that falls outside of what you can handle, though, you might wind up looking at a potential disaster.

Here is an overview of some of the things that you should look for when choosing an investment property and what to expect if you plan to finance its purchase. Together, this guide should help you define what seek in a new investment property and help you to ascertain whether buying and renting it out is viable or not.

How to choose a property

Location

Location is everything. But really, it is. The location you choose has a significant bearing on many areas of your investment experience. For instance, think about your ideal tenants. If you ideally want to rent to a family, you'll have to look near top schools with nearby family-friendly amenities such as parks. If you’re considering a commercial property, make sure it has sufficient traffic.

To make sure your property is occupied at all times, consider purchasing something near a college campus where you might rent to a different student every year. If you’re planning to buy a vacation rental, make sure that it’s close to major attractions. You won’t get premium rates if you’re not in a prime location.

Beyond attracting the type of renter that you’d like to deal with, consider the neighborhood. Are property values in this area appreciating? Even though the goal is to earn a monthly income, you still want your property to maintain or increase its value if you decide to sell in the future. Are crime rates rising or falling? Typically, properties that are in low-quality areas will have higher turnover rates and generally require more work to manage and maintain.

And if you plan to manage the property yourself, how far will you have to travel to maintain it? The context of the neighborhood will help you determine whether the property is worth the risk now and for the long-term.

Condition of the property

Consider what you’re looking for in terms of property condition before you begin your search. If the potential to flip or rehab the house at a substantial gain is there, cautiously consider it. If you’re a handyman or woman or know a trustworthy contractor who will do quality work for a bargain price, then a fixer-upper might be a good place to start. Otherwise, keep it simple. If you’ll have difficulty financing or completing the renovations yourself, then stick to buying a property that’s already in decent shape.

As you pinpoint potential investment locations, make sure to look at them through the eyes of a future tenant rather than those of a home buyer. You don’t need the emotional component of the home buying experience, so put form and function at the top of your list. Make sure that the type of tenant you want to rent your unit will want to rent it.

Also, invest in a home or building inspection for your prospective property so you know in advance precisely what condition your property is in. If you choose to renovate, prepare for the time and expense of those improvements and build in a healthy contingency fund. As you repair properties, you’ll often uncover other problems you’ll need to fix. You have to provide a safe environment, so it’s imperative to fix all the major issues before you lease your property to a tenant.

As you consider a fixer-upper, make sure to implement practical designs that will appeal to a wide range of potential renters. Opt for durable materials that will stand the test of time and perhaps survive multiple renters. This renovation isn’t the time to coordinate a flashy custom paint palette or to waste money on touches that your target rental audience won’t necessarily enjoy. Save the custom renovation for your own house.

Bear in mind that each day that you need to work on the property is one that it won’t be generating income for you. Include the time before your property hits the market as an expense and make sure that you can handle that before you take the fixer-upper plunge.

How to Run the Numbers

Return on Investment

Once you've settled on a location, there are a few quick calculations that you can do to assess the viability of an investment. These will all give you a picture of how sound the investment is. Look at how much you have to invest. Consider how long you plan to own the property and what your potential income needs to be to justify this purchase.

A good rule of thumb as you evaluate the profitability of a property is the 1% rule. Ideally, you want to be able to secure at least 1% of the value of your total investment in fair market rental income each month. If you buy a $150,000 home, then you’ll want to make sure that you can roughly command at least $1,500 in rent each month.

The actual figure will depend on several variables. Though it's challenging to predict maintenance expenses, an older property is likely to require more work while you own it than a brand-new place. If you do not plan to maintain the property yourself, then include the anticipated management costs as one of your expenses to make sure that you still come out ahead. If your property requires HOA fees or other maintenance costs, make sure to include those too.

Other metrics that you can use are the cap rate, which compares the price of the property to the anticipated earnings against the rest of the neighborhood. Another standard metric is the price per square foot, also compared to other homes in the area. These will give you a snapshot of how valuable your property is before you decide to do any further in-depth analysis, like calculating the actual ROI or Return on Investment. At the end of the day, if you can’t take care of the expenses associated with owning and maintaining your investment profit and clear a profit, then you’d be wasting your time.

Down Payment

If you plan to finance any portion of your investment property, know that mortgage requirements for investment properties are different from those of buying your standard family home. The first difference is that you'll have to put down at least 15-20% of the property value as a down payment. You won't be able to get away with putting down 3-10% as you would for a primary family home mortgage loan since your investment property is considered a non-owner-occupied transaction (a house that you don’t plan to live in). Investment properties don’t qualify for mortgage insurance, either, and getting approved requires that you meet stricter approval requirements to secure financing.

Beyond that, the process is similar to obtaining your standard mortgage. The lender will consider your credit score, income, and debt-to-income ratio to make sure that you can handle the added financial pressure of an investment property. Like with your own mortgage, you’ll want to get pre-approved to make sure that it’s a viable proposition. If you can’t pay the down payment required and finance the costs of renovating the property, then you should consider another property.

Investment Mortgages

You should also expect that interest rates for your investment property mortgage might be between 0.50% to 0.75% higher than what you might get if you were seeking a primary mortgage. Just like any mortgage, you’ll want to make sure you're getting the best deal. Lenders will look at a few important considerations as they evaluate your loan. The first thing is the type of property that you're looking to buy. Multi-family properties with 2-4 units will add another 0.125%-0.25% onto the standard investment mortgage interest rate. Additionally, they'll consider your credit-worthiness and the amount of your down payment. A higher credit score and larger down payment can lead to a more favorable interest rate.

These qualifications are a little stricter than a primary mortgage because research shows that if you own an investment property and fall on hard times, you’d rather default on that loan than on the one that secures your own dwelling. Since owning an investment property is essentially owning a business, owners aren’t as attached to the property, making lending for an investment property a riskier proposition for lenders.

Make sure that you’re not carrying a lot of debt in proportion to your income and cash reserves. Your finances will be reviewed even more thoroughly when you apply for an investment mortgage than your mortgage application. Lenders just want to make sure that you have the funds to pay off their loan (and cash reserves to pay for the mortgage even if you don't have tenants) and handle any expenses, so they don't have to deal with any repercussions like default or foreclosure down the line.

If you've never owned a home or managed property, it'll be more difficult to secure an investment mortgage. If that's the case, some lenders will let you hire a property manager to shore up your application.

Property Taxes

Also, pay attention to the property tax rates and appraised values of properties that you may buy. Property taxes are a considerable expense that you need to include in your calculations when you determine if your investment is viable. Property Taxes may increase over time, so familiarize yourself with what you may need to pay on the property in the future.

 

Purchasing an investment property is a big decision, and choosing the right property is essential to earning a nice return on your investment. Prioritize selecting a convenient location and property that will attract the types of renters that you would like to have. Look for homes in safe neighborhoods with the potential to appreciate.

If you have the skills to brave a fixer-upper, make sure that you consider all of the costs and brace yourself for any eventualities. If renovation skills aren’t in your wheel-house, the entire experience may cost you more than you’d expect. Regardless, make sure you get a home inspection so that you know what you’re getting into.

As you consider the potential income of a given property, you can use the 1% rule to assess if the rent justifies the purchase price quickly. To calculate the return on investment, you'll need a good handle on what expenses you'll incur, like property taxes or management fees, as well as any financing charges if you plan to seek a mortgage. If you plan to finance your investment property, be prepared for stricter qualification requirements and more intense scrutiny of your finances, than you would if you were seeking a primary mortgage. Lenders consider investment mortgages to be higher risk, so anticipate a higher interest rate and larger down payment, too.

Even with all of that to consider, investment properties can bring in a substantial, steady stream of income if you choose wisely. If you are financially stable with good credit and care to invest a bit of time and attention to choosing and caring for your property, you can become a bona fide real estate investor.

For additional assistance with picking out your ideal investment property, feel free to reach out to Realty Executives by calling (866) 742-5732 or emailing us at ClientCare@RealtyExecutives.com.


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