The Do’s and Don’ts for Investing in Real Estate

Are you thinking about investing in real estate in 2021? It may be the perfect year to purchase a rental property, a vacation home, or to flip houses. I would be happy to help you find the perfect investment property, and I’ve put together this list of tips to help you get the best return on your investment.

First, consider what type of investment property is best for you and your family.

If you are thinking about a rental property, such as a vacation condo or rental home, consider how much time will be needed for things like maintenance, managing a website or rental listings, and vetting potential tenants. For rental homes, make sure the areas you are searching are attractive to tenants in terms of proximity to nearby business centers and transportation hubs, and in good school districts for family tenants.

Is a family vacation property more to your liking? Make sure you read any and all rules pertaining to owners and guests, as well as rules on renting your property out when you are not using it, if that is something you plan to do. Also be sure that your vacation property is somewhere you foresee your family wanting to travel to often enough to make it worthwhile.

For new house flippers, you want to find out what return you can expect to get in your market area and talk to contractors and suppliers to get realistic estimates on renovations, both in terms of price and time to completion.

Here are some additional Do’s and Don’ts for investing in real estate:

Do aim for at least a 15% return on investment.

Do look for homes priced in the low end of the median price range.

Do look for 3-bedroom, 2-bath single family homes for rentals or flipping.

Do focus on one neighborhood or area.

Do purchase rental properties close to your home if you plan to manage them yourself.

Do use one real estate agent to help with all your buying and selling needs.

Don’t purchase a second property until the first is earning revenue.

Don’t buy properties that you wouldn’t want to manage, even if you plan to use a property manager.

Don’t buy a home that you cannot afford to carry for several months in case of a slow market.

Don’t buy a home or condo without having inspections performed.

Don’t buy without title insurance.

Don’t buy more properties than you are able to manage.

As I said, I can help you search for investment properties. Sometimes buyers make the mistake of searching on their own and contacting the sellers or listing agents directly. Working with several different people wastes your time and increases the chances that you will miss out on a deal. Also, working with one agent allows that agent to learn your tastes, needs, and parameters, so I can be out looking for the right property while you are busy doing other things.

Our Top First Time Home Buyer FAQ’s answered

Mortgage-Related

How do I know if it’s time to buy instead of rent?

If you know where you want to live, have a steady and secure income, and are ready for the responsibilities of homeownership, then it’s a great time to invest in property.

How much do I need to save up for a down payment?

A conventional loan down payment is usually 20% of the sales price, but other types of financing require as little as 3.5% to 15%. A mortgage lender can tell you what types of loans you qualify for.

How do I know if I qualify for a loan and how much I can afford?

Contact a mortgage lender to get pre-approval for a loan. The lender will ask you some basic questions about your income and debts and can tell you what amount you can be approved for, and how much your mortgage payments will be.

What does the lender need from me to give me a loan?

Usually, you are asked to provide your last two tax returns to show proof of income. You should also provide recent bank and credit card statements and proof of your current pay rate. You will also be asked for your social security number so they can run a credit check.

What’s the difference between pre-approved and pre-qualified?

While often used interchangeably, these terms don’t mean the same thing. Pre-qualification is an estimate of what you may be approved for based only on the verbal information you provide. Pre-approval means the lender has verified your income and debt information and run a credit check.

How do I know which mortgage option is right for me?

Your mortgage lender is the best person to advise you on this question. Their products and qualifications change from time to time, so they would know best what products are available to meet your needs.

Searching for a Home

What should I do when I see a house online that I like?

Call your buyer’s agent: the agent you are working with to find your home. It’s best that you work with one real estate agent throughout your search because that person learns what you like and dislike and will invest a lot of time vetting properties for you. That person also represents your best interests only. When you call the agent advertising the home, you are dealing with the seller’s agent, so, while they can assist you, they are also trying to get the best price for the seller.

Can you show me a house if it’s not your listing?

Absolutely. As a buyer’s agent, I can show you any house listed in our MLS system, and I will contact FSBO sellers on your behalf. As mentioned above, working with me as your buyer’s agent ensures that your interests are protected.

How do we write an offer?

When you find the property you want to make an offer on, I will run a Comparative Market Analysis (CMA) to help you determine a fair offer amount. I will also guide you through the additional terms of the contract, such as the escrow amount, closing date, and any additional terms you want to be added to the offer. I will write the offer on a contract form and submit it to the seller’s agent.

What if I want to back out of a contract?

You always have the right to back out of the purchase, but you may lose your escrow deposit. If the contract is contingent on a property inspection, you usually have the right to cancel for any reason during the inspection period. Once the inspection period has passed, you cannot back out and keep your deposit unless the seller agrees, or an additional term has not been met.

What happens if there are other offers on the house I love?

If a seller receives multiple offers on their home, usually their agent will inform the buyer’s that multiple offers have been received and the buyers have another opportunity to alter their original offer to present their “highest and best” offer. Keep in mind that many factors may influence the seller in addition to the offer price, such as the down payment amount, closing date, and inspection terms.

What happens when my offer gets accepted?

Once both parties have agreed on all terms and signed the contract, your escrow deposit must be made and you should schedule the home inspection. Your lender will receive a copy of the contract and will begin processing your mortgage application.

We’re Under Contract!

What does “under contract” mean?

Under contract means that all parties have agreed on terms, have signed the contract, and the signed contract has been delivered to both buyer and seller. Payment of the escrow deposit is expected but is not a requirement to make a binding contract.

What is escrow?

The escrow money, escrow deposit, or good faith deposit is money that is offered with an offer, or as soon as an offer is accepted, to show the seller that you are serious about moving forward with the purchase of the home. Because you forfeit this deposit if you back out of the purchase for any reason not allowed for in the contract, the larger the escrow deposit, the more seriously your offer is taken.

Do I need an inspection?

We always recommend that you have a home inspection done. In the scheme of things, paying a few hundred dollars to have peace of mind that there are no hidden dangers or problems is well worth the money.

How much are inspections?

The cost of the home inspection depends on the size of the house and additional inspections requested, such as swimming pool, septic tank, termites, insurance four-point (HVAC, plumbing, roof, and electrical,) wind mitigation, and radon. An average home inspection, without additional inspections, is about $300.

What if my loan doesn’t get approved?

If you have gone through the pre-approval process and have been forthcoming with all the information requested by your lender, it’s unlikely you will be turned down, but it does happen. Make sure you do not change jobs, purchase big-ticket items on credit, take out a car or boat loan, or open any other new credit accounts while your mortgage is being processed. If your loan does fall through, talk with your lender about changing to a different loan type.

When can I start moving?

When you have the keys! When you are financing your purchase, it takes four to six weeks for your loan to be processed. Once the lender gives the all-clear, closing is scheduled. You will sign your loan documents and both parties will sign documents transferring ownership to you. Unless other arrangements have been agreed upon by both parties, the sellers should have completely vacated the home when they sign the closing papers. You can have your belongings ready to move, and a moving company scheduled before you go to closing. At closing, you will receive the documentation you need to provide utility companies with proof of your new residence.