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5 Tips for Buying an Investment Property in California

5 Tips for Buying an Investment Property in California

June 19th, 2019 | Purchasing a Home

Adding real estate to your investment portfolio can be a great asset… if done correctly. Buying a property to flip or rent out has different mortgage requirements than a primary residence. There are always hidden costs that need to be anticipated as well. If you are interested in taking on an investment property, here are five tips for making it a successful venture.

1. Determine the Right Property Type and Area

Picking the right property is crucial to your success. If you are buying a rental home, you need to decide what type of renters you want to attract. Find out what areas those people tend to live in and how much they can afford on their rent. If you are buying to flip the property, you need a home that requires reasonable repairs or renovations that fit within your budget. It also needs to be in a neighborhood that will warrant the price at which you hope to resell it.

2. Pay Down Your Debts

The mortgage requirements on an investment property are much stricter than for a home you plan to inhabit. Lenders will want you to have a lower-debt-to-income ratio. If you have outstanding student loans, credit card bills, auto loans or any other significant debt, try to pay it down before applying for a mortgage.

3. Save Up a Larger Down Payment

Another tighter standard for investment property loans is down payment size. Because it is often a second mortgage loan for borrowers, the risk to the lender increases. In order to mitigate that risk, lenders require higher down payments. You can expect lenders to ask for anywhere from 15%-25%. And even with higher down payments, you may encounter higher interest rates than on a primary mortgage.

4. Calculate Potential Profits

It is smart to have a rough idea of how much you plan to make on your investment property. If it’s a flip home, you can estimate your profit based on the original sale price of the property, your desired resale price and the amount you anticipate spending on renovations.  If you are buying a rental property, you can figure out your monthly profits by subtracting your monthly mortgage and maintenance costs (including fees for property management companies) from the expected monthly rent. Figuring out your profits will help you understand your margins and whether they are high enough.

5. Set Up an Emergency Fund

There are always unexpected costs associated with investment properties. It might be finding out more extensive repairs are needed after starting a renovation, or it might be the AC going out after you get renters moved in. Before you buy, saving up a sizable fund to cover emergencies will help you avoid financial crisis when things go wrong as they always do from time to time.

Buying an investment property will be a much more rewarding experience if you do your research and some preparation before putting down an offer. Keeping these five tips in mind will help make your new investment adventure profitable to your bottom line.

Contact us today at 510-339-2121 if you are thinking about purchasing an investment property in California.

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Holmgren and Associates

DBA of Finance of America
1900 Mountain Boulevard
Oakland, California 94611
Phone: 510-339-2121
NMLS 0910184/1071
 

Holmgren & Associates is a branch of Finance of America. We are a full service mortgage banker with an experienced staff offering expertise in residential mortgage lending, with primary focus on loans for home purchase, refinance, and reverse mortgages.

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©2019 Holmgren & Associates is a division of Finance of America Mortgage LLC |Equal Housing Opportunity | NMLS ID #1071 (www.nmlsconsumeraccess.org)| 300 Welsh Road, Building 5, Horsham, PA 19044 | (800) 355-5698 | Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act
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This is not a commitment to lend. Prices, guidelines and minimum requirements are subject to change without notice. Some products may not be available in all states.  Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision.  Any materials were not provided by HUD or FHA. It has not been approved by FHA or any Government Agency.  A preapproval is not a loan approval, rate lock, guarantee or commitment to lend. An underwriter must review and approve a complete loan application after you are preapproved in order to obtain financing.  Questions, comments, concerns? Send to customerrelations@financeofamerica.com