You purchased your dream home. All the pictures are hanging in precise alignment, the rooms are painted the perfect colors and now you can sit back and relax. But, wait… what’s that? You’ve been bitten! Bitten by the property bug. Like people who get one tattoo and then just want “one more,” the idea of purchasing another house is enticing. Not one to be your new home… you love what you have… but maybe one to rent or lease or use for platforms like airbnb.com or vrbo.com (or as we call them “non-owner occupied”). Before you start the home buying process all over again, be sure you know the truth about investment properties.
Truth: Patience Proceeds Profits.
You need to prepare yourself for what lies ahead. You likely have gone through the mortgage process before, so you can predict to go through a similar experience – with some variations. Before doing too much planning on what you may do with the potential income from the investment property, it’s best to be pre-approved. Every home loan transaction is different. Purchasing an investment property could have different requirements you didn’t encounter before. You can ask RJ Crosby, your lender for life, what those differences may be.
Truth: Research Required.
Before making a commitment of owning an investment property, be sure you know you’re ready for (or even able to take) the adventure. As when you purchased your home, you’ll want to consider the neighborhood and the home’s proximity to various community features. If you plan to use your investment home for short-term rentals, you may want to view homes near your city’s tourist attractions. If you’re targeting more long-term renters who have children, then you might want to consider nearby schools and parks. Also, investigate both the long- and short-term rental market in your city, specifically in the neighborhoods of homes you’re visiting. Is it saturated? Would you be able to charge the rental pricing you hoped for? Is a full home the way to go or is a condo or duplex more manageable and marketable where you are? Above everything else, you’ll want to ensure whatever community, building or development where the property is located allows for the home to be used in this manner. Conduct your own due diligence to ensure renting your property is allowed, checking with the condominium/community development guidelines and city ordinances.
Truth: Extra Expenses.
Even when you do close on the investment property, there is likely work to do. Rarely do you buy a home in perfect condition that is ready to rent or lease immediately. Some work may be merely cosmetic while other projects might require larger scale renovations. While investment properties can provide additional income, they typically are not a “get rich quick” type of situation. You’ll also have an additional mortgage payment. This can be off-set when renters occupy the property, but before that time and in between renters, those payments are still there. Then, the hot water heaters breaks or the roof leaks or the air conditioner breaks down. Just like in your primary residence, unexpected updates and maintenance is needed. When those instances occur, the responsibility is yours. Also, while security deposits may help cover repairs needed after your renters vacate the property, handling the logistics of having them made is on your “to do” list.
Truth: Marketing Mindset.
Renters come and go. The length of their stay varies on the agreement with your renters and how you use the property (short-term versus long-term). With this in mind, what tools do you have to use to market your investment property? Just like selling a home, curb appeal and professional photographs go a long way in helping others see themselves comfortable in your investment property – whether for a year-long lease or a weekend. Platforms that help promote short-term rental properties often have systems in place to market your investment home as well as vet out potential renters. For long-term rental properties, property management companies can help market your investment home and also help deal with supervise some of those necessary maintenance repairs mentioned earlier. Either way, your mind often needs to be set on making sure the home is occupied if you hope to profit from the investment, and that requires making sure people know about it.
It is true that investment properties can potentially prove to be a lucrative purchase. Going into this venture with blinders off and realistic expectations could help the experience be smoother than you imagined. The Crosby Team at First Choice Loan Services can answer whatever questions you may have about the process.
Senior Vice President | National Loan Solutions