Forum Thread

Looking to buy first investment property in the next year

yolodo24 8 10 September 17, 2015 at 04:47 PM
Deal
Score
0
3,318 Views

Thread Details

I'm 26 years old with a stable job looking to purchase an investment property in the next year.

I currently live in the bay area so unfortunately buying a place out here is out of the question for me but purchasing a 2br+ / 2ba place in my home town (about 2.5 hours away) is quite reasonable.

My financial situation is pretty decent:
- $1xxK salary
- 760+ credit score
- $5xxx left on student debt, should be payed off in ~28 months
- At the end of each month I'm able to save about $600 towards the downpayment
- Currently have ~$36K in liquid assets to use for downpayment

My current goal is to have $40K saved up before I start looking, so I have a few months to go.

My questions are - since this will be an investment property is there absolutely no way to avoid the 20% downpayment requirement to avoid the pmi? How much extra over the $40K should I expect to need in order to close the deal (Assuming $200K purchase price)?

Any other advice on purchasing an investment property would be much appreciated.

Thanks!

21 Comments

1 2

Sign up for a Slickdeals account to remove this ad.

#2
If you're making 100k, why can you only save 600 per month?
Reply Helpful Comment? 0 0
Quote from charles052 View Post :
You have blind faith whereas I do not.

Quote from skiman View Post :
I can't escape the mental picture. theblaze.com is very clearly some sort of information anus yet some posters seem eager to attach their lips and deliver the product here.
#3
Op what sites online do u search online for investment properties?

And if ur only saving $600 towards this investment yet making 100k amonth, lets say 10k a month gross, something is off. What other expenses u got?
Reply Helpful Comment? 0 0
#4
First off, as others noted, your savings numbers are not adding up unless you have very high expenses on your main home.

Next, business loans\non-owner occupied property loans cost more and banks are generally more a pain in the backside about them. Expect the interest rate to be somewhat higher. Expect the insurance to be quite a bit higher. Banks will generally want more collateral and\or more of a down payment. How much varies based on your assets and whether or not you incorporate (strongly recommended even though it will increase costs to borrow). If it is going to be a rental property, banks will want to see rent rolls and that you can cover the payments based off you rental income with a good buffer built in for turn over, delinquencies, etc.

There are way too many variables, but when starting out, I would advise to stick to areas you know, stick to properties you can easily afford and stay ultra-conservative and only get properties in decent areas with a track record of good positive income. Avoid buying properties on speculation\on the assumption they will appreciate.
Reply Helpful Comment? 1 0
#5
Quote from yolodo24 View Post :
I'm 26 years old with a stable job looking to purchase an investment property in the next year.

I currently live in the bay area so unfortunately buying a place out here is out of the question for me but purchasing a 2br+ / 2ba place in my home town (about 2.5 hours away) is quite reasonable.

My financial situation is pretty decent:
- $1xxK salary
- 760+ credit score
- $5xxx left on student debt, should be payed off in ~28 months
- At the end of each month I'm able to save about $600 towards the downpayment
- Currently have ~$36K in liquid assets to use for downpayment

My current goal is to have $40K saved up before I start looking, so I have a few months to go.

My questions are - since this will be an investment property is there absolutely no way to avoid the 20% downpayment requirement to avoid the pmi? How much extra over the $40K should I expect to need in order to close the deal (Assuming $200K purchase price)?

Any other advice on purchasing an investment property would be much appreciated.

Thanks!
you tell them you're moving into it as your main home. see if that area has home loan options. (state program etc) FHA
Do you rent or own...I'm guessing rent
Purchase a home worth more than you're paying
Reply Helpful Comment? 0 0
for those that hate spelling mistakes www.walmarts.comCool

bulb save money by checking your insurance every 2 years (and not every 20)
Joined Sep 2015
New User
8 Posts
10 Reputation
Original Poster
#6
Quote from Switching2Geico View Post :
Op what sites online do u search online for investment properties?

And if ur only saving $600 towards this investment yet making 100k amonth, lets say 10k a month gross, something is off. What other expenses u got?
Thanks for the response. I typically use Redfin. The $600 amount is probably significantly less than what it will be going forward. I based it off this past month, when I had to pay off some summer expenses and helped my parents remodel their part of their home.
Reply Helpful Comment? 0 0
Joined Sep 2015
New User
8 Posts
10 Reputation
Original Poster
#7
Quote from stufine View Post :
you tell them you're moving into it as your main home. see if that area has home loan options. (state program etc) FHA
Do you rent or own...I'm guessing rent
Purchase a home worth more than you're paying
So I keep my job in the Bay Area, but tell the bank I'm moving into the place I'm purchasing? I'd consider doing it if I worked in the same city as I was looking to buy the rental property in. But it's 2.5 hours away and that seems pretty questionable.

To answer you question, yes I am currently renting.
Reply Helpful Comment? 0 0
Joined Sep 2015
New User
8 Posts
10 Reputation
Original Poster
#8
Quote from YanksIn2009 View Post :
First off, as others noted, your savings numbers are not adding up unless you have very high expenses on your main home.

Next, business loans\non-owner occupied property loans cost more and banks are generally more a pain in the backside about them. Expect the interest rate to be somewhat higher. Expect the insurance to be quite a bit higher. Banks will generally want more collateral and\or more of a down payment. How much varies based on your assets and whether or not you incorporate (strongly recommended even though it will increase costs to borrow). If it is going to be a rental property, banks will want to see rent rolls and that you can cover the payments based off you rental income with a good buffer built in for turn over, delinquencies, etc.

There are way too many variables, but when starting out, I would advise to stick to areas you know, stick to properties you can easily afford and stay ultra-conservative and only get properties in decent areas with a track record of good positive income. Avoid buying properties on speculation\on the assumption they will appreciate.
This is what I was kind of worried about. It seems like purchasing an investment property vs a home to live in takes a lot more money and a much bigger pain. I'm looking to buy it in my home town because prices are much more reasonable there and I know the city pretty well. I certainly don't want to over extend my finances, but looking at current interest rates and rental rates for the area it really makes sense to purchase a place as soon as possible. It's the downpayment & other closing expenses that are most concerning to me right now.
Reply Helpful Comment? 0 0

Sign up for a Slickdeals account to remove this ad.

#9
Quote from yolodo24 View Post :
So I keep my job in the Bay Area, but tell the bank I'm moving into the place I'm purchasing? I'd consider doing it if I worked in the same city as I was looking to buy the rental property in. But it's 2.5 hours away and that seems pretty questionable.

To answer you question, yes I am currently renting.
Lying to the bank and\or your insurance company about the purpose of the property is just bad news. In the worst case it can be construed as fraud and the bank could possibly call in the mortgage\the insurance company could cancel your policy if they find out. And heaven help you if someone gets hurt at the place and the insurance company finds out you got the insurance under false pretenses. That could start a lengthy court case and void any corporate shield you have. It just is not worth it. Honestly is always the best policy and it is not worth trying to save a percentage point or two on a loan or a few hundred on insurance by lying about the nature of the premises. Bottom line is if the money is that tight that a point or two on the loan is going to make all the difference, then you are over-extended and you should not buy the property in the first place. My 2 cents.
Reply Helpful Comment? 1 0
Last edited by YanksIn2009 September 18, 2015 at 11:06 AM
#10
Quote from yolodo24 View Post :
This is what I was kind of worried about. It seems like purchasing an investment property vs a home to live in takes a lot more money and a much bigger pain. I'm looking to buy it in my home town because prices are much more reasonable there and I know the city pretty well. I certainly don't want to over extend my finances, but looking at current interest rates and rental rates for the area it really makes sense to purchase a place as soon as possible. It's the downpayment & other closing expenses that are most concerning to me right now.

A lot is relative. Banks are a pita as a general rule and do not always act logically either. Closing expenses are not going to be higher by and large. Title insurance, inspection, survey, etc. prices are usually more or less set in an area. You should be able to get as good a deal as you would if you were buying yourself (sometimes better once you establish a relationship with vendors and do multiple deals). Banks view investment properties\non-owner occupied properties as more risky (and they are by and large). It is what it is and there are some banks that cater to small business loans that may be able to cut you a decent deal depending on your situation and finances. You have to shop around and you have to meet their criteria, which is often higher with respect to down payment percentage, capital on hand, etc.

You often see the debate on here about sole proprietorship vs LLC or S-corp for rental properties. I am firmly in the form a corp camp but your tax adviser and lawyer can fill you into the pros and cons there. I can almost guarantee you that any attorney is going to recommend forming a corp though.
Reply Helpful Comment? 1 0
Last edited by YanksIn2009 September 18, 2015 at 11:00 AM
Joined Sep 2015
New User
8 Posts
10 Reputation
Original Poster
#11
Quote from YanksIn2009 View Post :
A lot is relative. Banks are a pita as a general rule and do not always act logically either. Closing expenses are not going to be higher by and large. Title insurance, inspection, survey, etc. prices are usually more or less set in an area. You should be able to get as good a deal as you would if you were buying yourself (sometimes better once you establish a relationship with vendors and do multiple deals). Banks view investment properties\non-owner occupied properties as more risky (and they are by and large). It is what it is and there are some banks that cater to small business loans that may be able to cut you a decent deal depending on your situation and finances. You have to shop around and you have to meet their criteria, which is often higher with respect to down payment percentage, capital on hand, etc.

You often see the debate on here about sole proprietorship vs LLC or S-corp for rental properties. I am firmly in the form a corp camp but your tax adviser and lawyer can fill you into the pros and cons there. I can almost guarantee you that any attorney is going to recommend forming a corp though.
Ok thanks I appreciate the advice. I'll keep putting money aside and start looking when I'm closer to my goal. I'll look into the s-corp stuff as well. I'd like to get one house under my belt before I start even thinking about "multiple deals".
Reply Helpful Comment? 0 0
#12
Quote from YanksIn2009 View Post :
Lying to the bank and\or your insurance company about the purpose of the property is just bad news. In the worst case it can be construed as fraud and the bank could possibly call in the mortgage\the insurance company could cancel your policy if they find out. And heaven help you if someone gets hurt at the place and the insurance company finds out you got the insurance under false pretenses. That could start a lengthy court case and void any corporate shield you have. It just is not worth it. Honestly is always the best policy and it is not worth trying to save a percentage point or two on a loan or a few hundred on insurance by lying about the nature of the premises. Bottom line is if the money is that tight that a point or two on the loan is going to make all the difference, then you are over-extended and you should not buy the property in the first place. My 2 cents.
I'm buying this house to move. I don't want to live in the bay area anymore.
2.5 hours each way is nothing. other people do more.
after buying
wow 2.5 hours each way really sucks. I'm going back to my old place in the bay area.

where is the LIE?

only problem is if he got assistance from agency for down payment or cheaper interest where main residence is required for xx years.
Reply Helpful Comment? 0 0
#13
Quote from stufine View Post :
I'm buying this house to move. I don't want to live in the bay area anymore.
2.5 hours each way is nothing. other people do more.
after buying
wow 2.5 hours each way really sucks. I'm going back to my old place in the bay area.

where is the LIE?

only problem is if he got assistance from agency for down payment or cheaper interest where main residence is required for xx years.

If you actually move and live there it is one thing. Making up stories about moving to secure lower rates is fraud in the strictest sense. Yes you can move, change your mind and leave and decide to rent afterwards. That is fine but you then have to tell your insurance company and switch your homeowner's policy. And the investment property you would be moving from if converted to a rental now has to have a dwelling policy not a regular owner occupied policy. And if a major claim was brought against you in the period you had moved back and if you had not told the insurance company about the switch over in a reasonable due diligence period of time, they would have grounds to challenge you and payment (although that becomes a very murky area as to what the intent was).

As for the mortgage, in your scenario you would cover the mortgage personally, lose all corp protection and when you move back and buy(?) another house you would still have to show the existing mortgage on your financial disclosure when applying for house number 2's mortgage (unless you planned on paying all cash) . All you do is move the problem to the next property down the road and all this to save a little in premiums and interest. I am all for getting the best deal, but doing so at the expense of corp protection and\or potential legal hassles down the road to save a fairly small sum in the long term (when you consider you should be making money off the investment property) is foolish imo. Tell the insurance company and the bank what is going on so that there is no debate. The added charges are deductible and part of the cost of doing business that should be factored into the decision as to whether to purchase the property in the first place. My 2 cents.
Reply Helpful Comment? 0 0
#14
that's why i live in a box
Reply Helpful Comment? 1 0
#15
first off you will be buying into a bubble market,expect the crash in 2017-2018

I take it your looking up at Sacramento or up that way,when something breaks down you will have to drive 2 hours to fix it,it better not be in a fire danger zone as those properties are worthless,also a lot of employers have been burnt out of business so there are less jobs up there,all the way up to Oregon border


http://www.fire.ca.gov/general/firemaps.php
Reply Helpful Comment? 0 0
Page 1 of 2
1 2
Join the Conversation
Add a Comment
 
Copyright 1999 - 2016. Slickdeals, LLC. All Rights Reserved. Copyright / Infringement Policy  •  Privacy Policy  •  Terms of Service  •  Acceptable Use Policy (Rules)  •  Interest-Based Ads
Link Copied to Clipboard