Beginning Your Search

 

A written pre-approval makes you a priority in the eyes of real estate agents and sellers. That means you can expect preferential treatment and attention because there’s no concern that your financing will fall apart. Pre-approval has other benefits as well: 

·      You know exactly how much you can afford to spend on your investment property.

·      You won’t waste time looking at properties that are out of your price range.

·      There’s no nerve-wracking waiting to see if you’ll qualify to purchase the property you want.

·      A pre-approved buyer is a sure thing, so sellers will usually accept your offer first even if others offer a slightly higher price.

·      Once you select an investment property, your loan approval process will be expedited and simple.

Shop Like An Investor

You’re buying a property for one reason: to make money. Keep that goal in mind and give yourself every advantage. Establish your price range, target the areas where you’d like to buy, then begin your search with newspaper Classified sections and the Multiple Listing Service (MLS) used by real estate agents. You should also take these helpful guidelines into account:

1. Avoid areas where prices are at peak. Instead try to find a property in an up-and-coming area  where prices are more likely to climb.
2. Choose a desirable location that has activities nearby (recreation, culture, nightlife, shopping).
3. Consider why you might like to live there yourself in terms of rental and resale prospects.
4. Consider whether the property is in an area that will draw tenants. Is it near local businesses or universities that attract a renter population to the area?
5. Think about the local schools. Proximity to good schools is an important feature for tenants with children. It can also contribute to your home’s value.
6. Look for simple, low-maintenance homes with mass-market appeal.
7. Concentrate on purchase price, rental income, and potential profit. You won’t be living in the home, so it’s not necessary for you to love the layout or the carpet color.
8. Renovate quickly and simply. Get the property ready to market as soon as possible. Consider using professionals to speed up the process.
9. Look into distressed properties that have been returned to lenders (banks and mortgage companies) after foreclosures.
10. Find online foreclosure listings.
11. Work by word-of-mouth. When you’re visiting a potential investment community, let people know that you’re in the market for a property and what kind of property you’re looking for.
12. Check the town’s tax assessor’s office for out-of-state owners who might be interested in selling.
13. Drive through the neighborhoods of interest and leave preprinted cards in the mailboxes of potential properties.
14. Ask residents of targeted neighborhoods for any leads they may have.
15. Post “Wanted” ads in local papers, on bulletin boards in community centers and grocery stores, and on local community Web sites.

Considering Condos Or Co-ops

These are some of the fastest-growing investment vehicles on the market today and the easiest to get into. The financing of these properties can be arranged so that the rental income covers the monthly loan payments and maintenance fees. In a condo, you own an undivided interest in the actual physical structure plus you own the space within your unit. In a co-op, on the other hand, you own stock in the corporation that owns the apartment building. Both condos and co-ops are governed by a board that’s elected by the owners. As an investor, you’ll benefit from the regular maintenance that keeps your property running smoothly.

But you’ll need to do your homework to ensure that it’s a solid investment:

·      Check the economic health of the homeowners association by obtaining a copy of recent annual reports.

·      Review maintenance records for the building or complex to ensure upkeep has been regularly performed. Engineer’s reports may also be available for recently converted facilities.

·      Hire an appraiser to give you a report on your specific unit as well as the grounds in general.

·      Consider the price carefully by asking about comps and recent sales.

·      Verify that renting your unit is allowed under the homeowners association rules.

·      Check the vacancy rates in the complex to help judge renter interest in the community. Other legal constraints may affect the length of each tenant’s residency and whether pets are allowed.

·      Know what your limitations are before you buy.

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An Expert Home Team Makes A Big Difference

Building Your Team

Working with a team of experts can smooth your way to the right investment home, especially if you’re considering a long-distance purchase. You started by talking to your tax advisor and attorney about the feasibility of making this purchase and about potential tax advantages. Now it’s time to contact some other professionals:

Real Estate Agents

A solid relationship here can make all the difference, especially if you’re considering locales that are farther than a car ride away. An agent becomes your eyes, ears, and voice as they preview properties and locate homes that meet your criteria — perhaps working online to send you listings. A good real estate agent can:

·   Establish what you want in an investment property.

·   Search the Multiple Listing Service (MLS) and other resources for properties that match your needs.

·   Tell you about appropriate properties.

·   Provide valuable information on communities, comparable values of neighboring homes, tax rates, rental amounts, and building code regulations.

·   Arrange for digital photos or virtual tours to be sent via the Internet.

·   Help you formulate an offer on the property you wish to purchase.

·   Act as an intermediary between you and the seller, smoothing the negotiating process.

Appraisers

Even if you don’t plan to sell your investment property right away, an appraiser will help you determine whether or not your investment is a good one financially. In fact, most lenders will require a full appraisal of any property to assure that they’re making a sound move by funding your purchase. You can check newspapers for current prices on similar properties. But you might also consider hiring an appraiser. By providing recent sales prices on similar homes, an appraiser can help you determine a current market value for the home you’ve got your eye on. The appraiser will usually review at least three similar homes recently sold in the area, comparing their square footage, the number of bedrooms and baths, age, improvements, location, and condition. This provides a picture of the home’s current market value.

Investment Property Financing Experts

Whether you’re all set to buy or just trying to figure out what you can afford, you need solid financing information and guidance — and your lender can help. Investment financing experts can customize a mortgage to your unique needs, drawing from a wide varity of products. In addition to all of the conventional options, your lender may have special programs that overcome obstacles such as credit issues, hard-to-document income, and lack of savings.

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Things To Consider Before Investing

Does An Investment Property Fit Your Financial Plan?

Investing in real estate can be a powerful wealth-building tool. It can also be a burden that drains away assets and monopolizes your time and effort. It’s critical to be in control of your finances, have an overall plan, and believe that an investment property is the right strategy for you. Talk to a real estate attorney and accountant about your particular situation and goals. Cultivate your relationships with these advisors. They’ll serve you well throughout your investing career. Here are some questions to ask yourself to help you start clarifying your goals:

• What other investments do I currently have or hope to acquire in the future?

• What’s the status of my retirement savings?

• Will liquidity be an issue for me?

• Will I be able to handle long-term ownership even with an unpredictable cash flow?

• Do I expect my investment property to provide me with income when I retire?

• Do I expect the property to provide immediate income or long-term appreciation?

Do You Want To Be A Landlord?

Once you’ve determined that an investment home fits your financial goals, it’s time to decide whether or not you’re willing to deal with the responsibilities of being a landlord. There may be 3 a.m. phone calls to answer, late rents to collect, unsatisfactory tenants to evict, repairs and maintenance to attend to, paperwork to be updated, income and/or deductions to be claimed, taxes to be paid, and various new laws to obey. It’s a major commitment, but keep in mind that you can always hire professionals to take care of many day-to-day responsibilities. There’ll be more about property managers later in this guide. Whether you decide to be a hands-on or a hands-off landlord, be sure you understand that this is a business venture and that you need to be well informed at every stage. A good way to gain an insider’s perspective is by joining local real estate associations, which have regular meetings featuring advice from attorneys, accountants, repair specialists and other related experts. You should also consider joining a local apartment or landlord association. In addition to keeping updated on landlord/tenant matters, you can speak to other investment property owners and get copies of your state’s lease/rental agreements and other papers. Real estate trade journals and management magazines can also be a great resource for you.

Location, Location, Location

An investment property offers a unique option: you can buy one virtually anywhere. If you’re comfortable being an absentee landlord, you can actually own a home thousands of miles away and have a team of specialists manage your property. But most investors opt to be more involved than that, buying properties closer to home. An NAR study of investment home purchases shows the median distance to be 99 miles from the owner’s primary residence, with 37% located less than 25 miles away. Another advantage to buying close to home: it may be easier to make sound investments, because you’re familiar with neighborhoods, comparable values, and advantageous purchasing opportunities.

The “Typical”Rental Property

There’s no such thing! Investors have profited with everything from seaside cottages to high-rise buildings. Single-family homes, multiple-unit dwellings, co-ops, condos, and apartment buildings may all be investment properties. So may time-shares and fractional living scenarios. According to a 2002 NAR study, most investment homes (54%) are detached single family houses and 23% are multifamily homes. Most are smaller than the owner’s primary property and are usually easier to maintain. The median estimated value of an investment property was $127,000, in contrast to an estimated value of $200,000 for the principal residence. In addition, 42% of investment homes were in suburban or urban areas, with 30% located in resort areas.

Setting Parameters

Should you invest in a penthouse or in a studio? A three-story colonial or a two-bedroom ranch? The first time out, it’s probably best to invest in something on the small side. Unless you’re buying a move-in condition property and have a reliable tenant waiting in the wings, there’ll probably be a period of time before your investment starts generating income. During that period, you’ll have to make loan payments on the investment property from your regular income. Since smaller payments are easier to manage in such situations, most new investors prefer to start with a small property. Next decision: locale. City or country? Nearby or away from it all? Residential or resort? Real estate investors suggest, if you’re considering buying a property in an area far from home, that you may want to take advantage of promotional two or three day mini-vacation packages offered by timeshare developers. There’s usually minimal or no cost and, after you take the required timeshare tour, there’s still plenty of time to look around the community and check out home prices.

Source: www.locationshawaii.compdfInvestmentPropertyGuide.pdf

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