Read This Before You Purchase An Investment Property
Investing in real estate has become a hot topic with more and more people thinking about using it as a tool to grow their wealth. And to help potential investors like you, I have teamed up with Robin Mann, a Charlotte realtor, to explain 3 of the main ways you can start investing.
Flipping is a popular strategy for both beginner and veteran investors alike. This is when you purchase a property, hopefully at an affordable price, and then renovate it to make it an income-generating asset.
Financing for this type of investment often includes the funds needed to rehab and improve the property and it is often a short-term loan.
When looking at potential properties to invest in with this strategy, there are a few factors to keep in mind.
First, you need to make sure that based on the location and selling price, you will actually be able to sell the property at a profit.
Second, I recommend that all of my clients focus on areas two I personally keep an eye out for my investor client and for myself on areas that are going to be a hot market for future buyers because it’s a popular place to live.
2. Long Term Rentals
The second way to invest in real estate is to purchase a property with the intention to rent it out long-term. If that’s the strategy you’re looking at, it can be done with a conventional loan.
When you’re looking for a rental to invest in, there’s a method called the BRRR method that you should be familiar with. This is when you Buy, Renovate, Rent, and Refinance and then use the money you make to invest in a property after.
This is a popular option for people who want long-term rental income and are comfortable with either managing or outsourcing tasks related to being a landlord and managing tenants and the day-to-day issues that can come up in a rental unit.
3. Short-Term Rentals
The third option is to buy and rent a property short-term using something like Airbnb or another type of short-term rental structure.
If your intention is to only rent it out short-term, there may be no need to purchase it as an investment property (which can change up the structure of the loan). If the intention is to only rent it out, it would be purchased as an investment property but if you have some personal use of the property, it can actually be purchased as a second home with as little as 10% down. The rates are a bit better with a non-investment property loan if you maintain short term rentals for a week or maybe a month at a time
If you’re financing an investment home and if it's going to be a flip, sometimes people are actually financing the improvement of the home into the loan or they might be paying cash for those improvements.
But as a lender, if we know that that loan is going to be paid off in a short time, we’re less inclined to finalize that type of loan. You don't have a prepayment penalty but lenders do, which is why we’ll often suggest a different type of financing.
Financing an investment property is definitely a challenge. There are a lot of details to keep in mind including interest rates, penalties, the timeline, and expectations. It’s easy to be in a situation where someone wants to take advantage of you so being as smart and savvy as you can as an investor and having the right people on your team are nonnegotiables.
But overall, investing in real estate - either by purchasing your own home or flipping and renting properties - you will be diversifying your portfolio and growing your overall wealth.