How to buy Rental Property in today’s housing market
This article is designed to show you how to buy rental property in today’s unique housing market. With interest rates soaring around 8% and housing prices increasing each year you may be skeptical however at the conclusion of reading this article you will realize that there are several unconventional techniques that you can utilize to realize your dream of purchasing cash flow or break-even rental property.
Introduction
There are very few tax initiatives left for investors. One of the biggest initiatives that you can take advantage of is having the ability to depreciate real estate by owning rental property. Owning rental property has proved to be a formidable way of preserving wealth and transferring that wealth on to family members in the future.
If you are fortunate enough to purchase a rental property and keep if for an extended period of time (10+ years) you are almost guaranteed to have amassed a decent amount of equity.
The biggest issue with getting started in purchasing real estate is coming up with a down payment and additional initial costs. The majority of the strategies below are considered creative financing techniques. These strategies will require a down payment however you can buy a rental property with a relatively small down payment if you negotiate to purchase the property for the correct terms.
Owner Financing
If you want to have the ability to negotiate terms, it is vital that you find a homeowner who has a significant amount of equity in their home. You can contact an escrow company or data company and ask them to generate a list of “Out of State” homeowners who have owned their property for 20+ years. Once you get the list, you should send the homeowner a letter that simply asks them if they are willing to sell their property to you for the current appraised value. When you get a phone call from a prospective homeowner, you will advise them that you will pay the appraised value for the property if the homeowner is willing to carry the mortgage. If the owner is willing to carry the mortgage than you will need negotiate the remaining factors of the purchase (i.e.; minimal down payment, low interest rate, term of the loan). The monthly payment in which you negotiate should not exceed current market rents.
Leasing with the Option to buy
If you don’t necessarily have a significant down payment but you have the ability to move into your investment property, you may want to consider entering into a lease with the option to buy agreement on a property. A good lease/option agreement allows you as the renter to establish a purchase price for the home that you are renting. In addition, the agreement will allow you to accumulate a percentage of your rent as a down payment for the property should you exercise your option to purchase the property at the conclusion of the agreement term.
This is an excellent creative financing concept that allows you to buy a property with a modest savings account. In addition, leasing with the option to buy allows you to streamline the buying process.
Purchasing a Duplex or Fourplex, ADU
This concept is not necessarily considered a creative financing technique for buying real estate. Utilizing Others Peoples Money to purchase property is more of a niche. This niche consists of buying an investment property as a primary residence and renting out a portion of the property to tenants. This is most commonly done by purchasing a duplex, Accessory Dwelling Unit, or similar type of property.
The benefit from purchasing a Duplex or ADU is that when you buy a property like this as your primary residence, you do not have to make a 20% down payment. You can purchase your property with as little as 3% down with a conventional loan or 3.5% with FHA financing. In doing so however, you’ll need to sign an affidavit of occupancy, which states that you plan to occupy the residence for at least 1 year.
Assuming an Existing Mortgage
Yes, it is legal to assume an existing mortgage. An escrow company can guide you through this process should you choose to assume someone’s existing mortgage.
Here is how the process works: instead of working with a mortgage company to quality for a new loan, you find a homeowner who is willing to relieve themselves from debt by allowing you to take over their existing mortgage terms, including the interest rate. This type of real estate transaction significantly reduces the buyer closing costs and alleviates all of the red tape involved in purchasing/qualifying for a new mortgage. Assuming an existing mortgage is a streamlined process of purchasing your first rental property.
Tips for Success
You can buy rental property in today’s market by utilizing the strategies above. The process of acquiring real estate as an investment is a journey however if you stay the course, it will impact you in a positive way forever. Rental income produced by real estate can provide you with a steady stream of passive income as rents continue to rise and the mortgage on the property decreases. As a real estate investor, the optimum strategy to pursue is to buy a home in a good working-class neighborhood and hold the property forever.
Conclusion
Are you looking to buy investment properties in the Inland Empire? A ton of investment opportunities exist throughout Rancho Cucamonga area. You just need the right team to help you navigate your way through the many potential hurdles.
Superior West Property Management can help you! We have over 10 years property management and California real estate experience. Contact us today for more help or for any remaining questions!
Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws frequently change and this post might not be updated at the time of your reading. Please contact us for any questions regarding this content or any other aspect of your property management needs.
