Are you thinking about entering the REI arena, and you’re in the market for an Austin, Texas investment property? Many have succeeded in this business and now have a reliable source of income.
Looking for and buying the property is just one aspect of the business. Another question you need to answer is, are you ready to become a landlord?
Let this guide help you with everything you need to know before applying for a loan for your first investment property in Austin, TX.
The first thing you need to know is that the home buying process for an investment property differs from that of a primary home. Here are some of the qualifications you need to meet before taking the plunge into REI investing.
Investing in real estate requires higher financial stability than buying primary homes. Renting out to tenants involves serious work, and most lenders would require a higher down payment, usually in the 15% and up range.
Aside from larger down payments, it would help if you also had your property cleared by inspectors in your state.
It would be wise to ensure that you have enough money to cover the initial home purchase costs like down payment, inspection, closing costs, and rehabilitation costs.
Keep in mind that your expenses don’t start when tenants move in. You need to set aside a budget for ads and background checks because you wouldn’t want to get bad tenants that can increase your expenses in the long run.
There are states where tenants can withhold rentals if landlords don’t fix broken home utilities like plumbing and HVAC systems.
The main reason for investing in real estate is the prospective ROI you can get from the purchase. Investors should know how to calculate ROI before buying a property.
A 3% ROI for long-term rentals is a good start if you are buying in a hot market for rentals. If you invest in an area known for short-term rentals, a 3% ROI may not be enough.
To get a rough estimate of your potential ROI, look for similar properties in your area that are currently open for rent. Get the average monthly rent on those properties and multiply the amount by 12 months for a year’s worth of income.
The next step is to estimate your annual operating expenses, including insurance, property taxes, maintenance costs, and homeowner’s fees.
Subtract your operating expenses from your estimated annual rent to get your net operating income.
Lastly, divide your net operating income by the total value of your mortgage to get your total return on investment.
This computation will give you an idea if it is worth pushing through with the investment or not.
Property management takes plenty of time to ensure success. You have to run ads, potential interview renters, run background checks, make sure payments are collected on time, perform maintenance and make timely repairs.
If you are not ready to perform all the tasks above, you should think twice before investing.
There are different ways to finance your investment property. You need to make the right choice with your loan product because picking the wrong kind of loan can spell the difference between success and failure.
An Austin mortgage broker can help you get a conventional loan for your investment property. Expect to put down at least 20% or as high as 30% since lenders take on a higher risk than a primary home purchase.
Lenders will look at your credit scores and history to determine if you can afford to take on the additional debt. Take note that future rental income is not factored into your DTI calculations.
Private money loans are usually sourced from friends and family who have the funds to give you a loan on your investment property. Loan terms and interest rates would vary depending on the lender and your relationship with him.
Some lenders will require a legal contract wherein they can foreclose on the property if you default on payments.
If this is your first time in real estate investing, you should consider carefully the possibility of your relationship turning sour if things go south with the investment property.
A hard money loan is a good option for your fix and flip project since it is a short-term loan that fits your timeline.
Another upside of a hard money loan is the less stringent qualifications than a conventional loan. The primary consideration of hard money loan lenders is the property’s potential income.
You can also get a hard money loan in days rather than waiting for weeks and months on a traditional mortgage.
Ask about our Austin, TX fix and flip loan and see if this is the right loan product.
For investors with home equity, a cash-out refinance, HELOC, or home equity loan are options you can consider for funding your REI project.
Usually, you can borrow up to 80% of your home’s equity value to use for purchasing and rehabbing your potential rental property.
If you are unsure which one suits you, you can always ask your trusted mortgage broker for advice.
Real estate investing is a lucrative business, and if you are ready to take that leap of faith and purchase your first investment property, allow us to help you navigate the whole home buying process.
Apply for a commercial mortgage loan by Reliance Financial Group, and we’ll handle the rest.
You can sit back and relax as you go on your way to purchasing your first investment property.
Give us a call or send us a message on our website today for a free consultation.
We've been helping customers afford the home of their dreams for many years and we love what we do.
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