What Involved in Purchasing a Property as an Investor
Posted By admin on September 21, 2009
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If an investor is interested in an investment property that is 60,000. The investor acquires a loan for 90% of that amount. By the way, if the property is located in an area that is deemed declining then the mortgage company will require more down, so you may have to do 85% of the purchase price or pay 15% down to acquire the loan. For now, we will work with 90% of the purchase price. The mortgage will be for the amount of $54,000; however, the interest rate will be higher because the mortgage company is taking on more risk because the investor does not live in the property. The interest rate can be as high as 13%. The higher interest rate though, is for mortgage that would include a rehab loan, but we will talk more about that scenario later. In this example, the investor is just acquiring a mortgage to add the property to his or her portfolio. The interest rate that the investor secured was 8% making his or her payment $396.23. This payment is for principal and interest only. The investor would also have pay property taxes, landlord insurance, and maintenance fee, and in some instances utilities. In this scenario, the property taxes are $3000.00 annually. Therefore, the monthly property tax is $250.00 a monthly. The landlord insurance is 750.00 annually for 62.50 monthly. There is also a monthly maintenance fee that the investor needs to account for which is 75.00 monthly. The reason for the maintenance fee is that the investor is buying the property to make a profit. Therefore, the maintenance fee is to cover household repairs to the newly acquired property so the investor do not have use his or her on own money to make the repairs.
Now, the investor must determine which property type he or she would like then move forward. Always remember it is easier to rent three plus bedrooms than two or one.
Up until now I have spoken only about the possibility of buy and hold. What is buy and hold? Well, buy and hold is when the investor buys the property and holds it to rent it for a pre-determine number of years. It is important to note that in order for this to be successful the investor needs to know the area that is desirable to both renters and homeowners. If the investor is not familiar with the area, he or she can determine if the area is desirable to both homeowners and renters is visit the area several different times of the day. Another way to determine is to observe the upkeep of the exterior of the homes in the community. Most homeowners keep the exterior appearance of their homes up to a good standard. By doing this, it makes it easier to sell for a profit when you determine you want to sell.
There is yet another way to be a real estate investor and it is called fix and flip. Fix and flip is fixing up the property to flip or sell it to someone else. Under the fix and flip, if your buyer is acquiring financing to purchase the property then you will have to have owned the property for at least six months to be able to sell. Be aware that some lenders may require that you owned it longer. You may be wondering how the financial institution of the buyer knows how long the seller has owned the property well the lender requires a clear chain of title. The chain of title will show if there is any liens and/or judgment, but it also shows the chain of ownership. The chain of title yet again let’s the lender know if the property is marketable and free to transfer ownership. You may be wondering where the chain of title comes from? The chain of title comes from an abstract of the title. An abstract of the title is a condensed history of ownership of the property which is gathered by the abstracter through public record.
Once the Title Company and lender determine that the property is free and clear to sell. The lender needs to know that the buyer is free and clear of liens and judgments as well. The reason is that the liens and judgment that the buyer may have may attach to the property, so a search is done on the buyer by their name and social security number. If the buyer has a common name then a name affidavit can clear up most information that may come up. The name affidavit has the buyer’s name, social security number, marital status, last five years of addresses, etc. This information is used to rule out judgment that may appear as the buyer’s judgment or not.
Further Reading
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