Investment Property Basics- What do I need to know?
Making your purchase:
In order to purchase an investment property the bank will require you to have 20% of the sale price of the house at closing. Knowing this will help you determine what price range of house you want to be looking for. Since the housing crash a few years ago with many foreclosures, banks are much more careful with approving buyers for a mortgage loan. In fact, as of October 2015, the government put more regulations in place making the process of buying a home that much longer and more tedious for the buyer. You will likely not close on your property within the first 30-45 days of offer acceptance, unless of course you are buying your income property with 100% cash. With the new regulations in place, 45-60 days will be closer to the new normal to close.
What does the bank require?
Whichever lender you decide to go with, they will likely require the same documentation. Some of these items include:
Basic information including Social Security numbers
The bank will run your credit score
30 day consecutive history of pay stubs
W2s for the last 2 years
Tax returns for the last 2 years
Bank statements on all accounts for the last 2 months
Record of your current mortgage (if you have one)
Record of all investments/retirement funds
Proof of insurance on the house prior to closing
How do I find the right property for me?
Finding the right property starts with finding the right Realtor. There are so many Realtors out there, I recommend talking to family and friends to see if they have had a good experience with a certain one. This will help you narrow down your choices to hopefully a handful. I would then see who has the most experience in the area that you are looking to buy.
Although you will pay Realtor fees when buying and selling, it is almost necessary in the busy market if you want to find that “good deal” for your first flip. Your Realtor can set you up with an online account which will search all of the MLS listings and send you an email when a listing matches your search. You simply tell your Realtor what you are looking for in your house, what area/city you are looking in, and what your price max is. Then when a house gets listed, BAM! The listing will go right to your email for you to review. Now if you have found a good Realtor, hopefully you would be able to view the property with 48 hours.
What to look for when walking through a property?
Initially when looking at houses, most first time buyers get caught up in the “cosmetics” of the house and are overlooking the more important issues such as the roof, furnace, water heater, electrical, etc. Again, if you have found a great Realtor (as we have), he/she will have his/her phone flash light on and be walking through the cob webs of the basement checking the foundation and structure of the house., checking the dates on the water heater, and determining how old the furnace is. These “big items” are what will make or break the bank when it comes to a flip.
Getting to know how much repairs are (or at least a ball park) will also help you in making a solid but fair offer on a property. Again, if you found a great Realtor he/she will be able to give you an idea on cost to repair and even reputable companies to do the repairs.
So what are the most important keys to investment property success?
~Solid finances (at least 20% down) to hopefully qualify for a loan
~A GREAT Realtor (no we are not sharing ours! ;))
~A basic knowledge of what to look for when walking through a home