Real Estate Expert, Megan Flynn talked with Tra'Renee about how to buy a rental property to build your investment portfolio. Click here for more information about Megan.
Tips on Purchasing Rental Properties to Build Your Investment Portfolio
It's not as daunting as you think…
If you are purchasing an investment property, you'll need at least 15% down, 25% in some
cases. But, if you're okay with moving, you can rent our your existing property, leverage the
equity, and purchase a new primary residence for as little as 3-to-5% down. Mortgage
regulations stipulate that you only need to live in your home for 12 months before you can rent it
out. Renting one property and been living in your other one for at least a year? If you don't mind
moving again, you can do the same thing all over again to get into your third property.
Further, if you're a FIRST-TIME HOMEBUYER, you could shop for a duplex or quad, qualify for a low
down-payment FHA, live in one of the units and rent out the others. Who doesn't want someone
else to pay their mortgage?
KNOW YOUR MARKET
Sure, all of the financing strategies sound great, but you may be asking yourself, how am I ever
going to be able to find a property in Portland where the rent will equal the mortgage? Start
shopping. Though they're hard to come by, you can still find deals in the Portland, and
especially Vancouver, market. You may not realize much extra income on your investment
property for the first couple of years, but just remember that a renter is paying your mortgage (or
most of it) while your property value is increasing. If you plan to hold onto the properties for at
least 10 years, your investment will be well worth it.
Also, consider the vacancy rates in Portland. There are tons of renters, so it's highly likely you
won't have any problems renting your property, as long as your rents are at market value.
PLAN FOR THE UNKNOWN BEFORE YOU BUY
While some homeowners practice deferred maintenance, you can't do that with investment
properties. Tenants expect a certain standard of living (and the law also mandates those
standards), so when the water heater breaks or the roof begins leaking, you must fix it,
A good rule is to have at least six months worth of rental expenses in a savings account. If your
property expenses (mortgage, insurance, taxes, and repairs) are $1,500/month, you should
have $9,000 set aside for emergencies, including unforeseen months when the property may sit
vacant. Just because you don't have renters doesn't mean you get to stop paying your
THINK TWICE ABOUT FIXERS
Your time is money. Look for properties that are move-in ready. The less time you spend fixing
up a property, the more time you property is earning rent. A rental does not need all the bells
and whistles; that means more potential costs for you.
DECIDE HOW YOU WANT TO MANAGE
There are tools and tricks if you want to self manage your property, but to have truly passive
income, I recommend hiring a (good) property management company. Yes, they may seem
expensive up front, but will save you time, money and hassle in the long run.
A good real estate agent combined with a great lender will help you make educated purchasing