Although owning investment property has always been seen as a high-quality, relatively safe vehicle, doing so requires some knowledge, understanding, planning, and carefully selecting the right/appropriate property. After more than 15 years as a real estate licensed salesperson in the state of New York and has invested in residential rental properties several times, I firmly believe that it is crucial for prospective investors to pay close attention to these 6 fundamental principles regarding the realities of doing so. This essay will seek to briefly evaluate, examine, review, and discuss these in light of that.
Down payment is typically higher:
Lenders view the purchase of multi-family homes differently when determining the amount of down payment needed to secure a mortgage unless the buyer plans to reside there. Despite the fact that laws and conditions sometimes vary, a single-family home’s typical conventional mortgage is 20% whereas a non-owner-occupied home’s is 25%.
Additional requirements/predicted income/revenue/cash flow:
Lenders typically base their choices on the assessed value plus a series of numbers, ratios, etc., thought to represent a borrower’s ability to afford the repayment, etc., when granting mortgages for single-family homes. However, a crucial necessity for multi-family scenarios is based on the projected rent revenues, anticipated income, and cash flow. To reduce the risks to the lender, this is done!
All expenses:
Know all the up-front expenses associated with purchasing and maintaining the particular property. The owner’s obligations for real estate taxes, utilities, maintenance, repairs, revenues, cleaning in between renters, maintaining common areas and/or grounds, etc., should be taken into account. When choosing which home to buy, one should consider all of these costs!
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6% rule:
The 6% rule is a wise general principle. This means that the cash flow is equal to the revenues (expressed conservatively) minus all ownership costs (paid monthly or averaged, that way). This indicates that unless the genuine cash flow is at least 6% positive, nothing will happen!
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The 75% occupancy recommendation:
When estimating revenues, account for the possibility of vacancies and be ready. In order to account for this contingency, cut the figure to 75% after calculating the revenues using market-rate rents.
Renting demand/ease:
Take into account the local housing/rental market and whether it is difficult or difficult to rent when there are vacancies. Find out how long it often takes to rent similar condos in this neighborhood
