When you finance an investment property you need to decide how long a loan term you would like, or how long you will take to repay the loan. Generally investment property loans can have a term of 30, 20, 15, or 10 years.
To choose between a longer term such as a 30 year fixed rate mortgage, or a shorter term such as a 10 year mortgage consider whether it’s more important to have a lower payment commitment each month, or to pay less overall during the loan.
A longer term investment property loan spreads the repayment out over a longer period of time, which means the monthly payment will be lower. Shorten the loan term and you raise the monthly payment, but significantly reduce the amount of total interest paid by paying off the mortgage years sooner. In addition mortgage rates tend to be lower for shorter term programs.
Here’s a quick comparison between a 30 year and 10 year loan term for a $200,000 loan amount (This is simply an example to illustrate the potential interest savings, not currently available pricing.):
30 year fixed rate mortgage:
Note Rate: 5.000%
Monthly Principal and Interest Payment: $1074
Total Interest Paid: $186511.93
15 year fixed rate mortgage:
Note Rate: 4.000%
Monthly Principal and Interest Payment: $1478
Total Interest Paid: $66287.79
In this example the potential interest savings of $120,224.14!
If you can afford the higher payment consider your other options for that money. Could you invest it somewhere else which would offer a greater return that would offset the interest savings? (In the example above would an investment of $404 a month over 30 years see a greater return than $120K?) Of course every investment has some level of risk, but it is important to weigh your options before deciding which loan term makes the most sense for your scenario.
Converting Your Current Home to a Rental Property
Many real estate investors acquire their first investment property simply by not selling their current home when they purchase a new house to move into, and market it as a rental property. If you can afford and qualify for a mortgage on a new home without selling your existing one this can be a great wealth building move.
This scenario makes particularly good sense for those who can make it happen as low real estate prices and exceptionally low mortgage rates mean you’re likely to get a great deal on your new home but not be able to sell the current home at a premium. And with more renters entering the market finding tenants may not be too difficult. (Of course these are lots of assumptions – be sure to carefully run the numbers, consult with experts such as a real estate agent, tax professional, and real estate attorney, and think through how you’ll manage financially if the home is vacant for some period of time.)
If you need to refinance the home after beginning to offer it as a rental you will most likely need to obtain an investment property mortgage. While rates are generally a bit higher for rental property loans when compared to those for owner occupied homes, with rates as low as they are currently you might find you can still save over your current mortgage especially if you have had the loan for several years.
Want to go havsies? 5 Questions to Ask Before Buying an Investment Property With Someone Else
Pooling resources to purchase an investment is the name of the game in the stock market, bonds, CDs, real estate investment trusts, and more. You share the risk, share the reward. But is it a good idea on a small scale – or, should you buy an investment property with someone else?
Assuming that in general the purchase is a good investment (and that the short and long term income potential versus up front and ongoing expenses is appealing), consider the following questions before joining forces with a fellow investor on the deal. (Be sure to also consult an attorney and tax advisor before entering into a real estate investment.)
1) Do you trust the person/people you are buying the home with?
This is extremely important, and while you can never predict with 100% certainty what someone else will do, it is crucial to give it serious thought. If the other party is a close friend or family member the trust issue may not be fear of being swindled, but rather can you trust them to follow through on their end of the bargain? If they are in charge of paying the bills on the home do you feel confident they will be paid ontime?
2) How will you handle disagreements?
One partner wants to update the kitchen and another wants to save the cash for a rainy day. How will you resolve differences of opinion? It is best to discuss this before any issues arise?
3) What is the exit strategy?
Do you have a plan in writing should one party want out? Does the other investor have right of first refusal to buy them out? How will a price be determined? Can they sell to anyone?
4) How will the work be divided?
Think through things such as taking care of the finances, finding renters, handling tenant issues, and maintaining the property. Which tasks will each partner be responsible for, and which will you hire a professional to manage, such as a property management company, accountant, or contractor.
5) Do you share a similar appetite for risk?
Any investment involves some level or risk, and real estate investing is certainly no exception. Partners in an investment will ideally either both be comfortable with taking risks, or both be happier playing it safer, taking a slow and steady approach. Be sure to discuss this thoroughly before purchasing a property.
Staging a Rental Property – Tips for Helping Your Investment Property Stand Out in a Crowded Market
Have you ever walked into a rental property or commercial space with barren white walls and zero curb appeal? In today’s competitive real estate marketplace, landlords may need to spend a little bit of time and effort to stage a home so that it shows well to potential tenants.
As the saying goes…you never get a second chance to make a first impression. Real estate professionals will tell you from experience, that many renters and home buyers will not even get out of the car to look at a property if the home looks like a mess from the outside. Spending an afternoon painting some trim, mowing and raking the lawn, and investing in some flowers or other plants can build positive curb appeal. A nice functioning lock can also send a message that the home is well maintained. The last thing you want to do is be sitting there jiggling your keys in the lock while the customer is standing looking at your train wreck of a front yard.
You are also going to want to make sure that your entrance way is well lit and nicely painted. Replace all burned out bulbs and use throw rugs and welcome mats to help cut down on the amount of dirt that can be tracked into the home. Use neutral paint colors so that you don’t automatically turn off half of your potential renters. Try to add some splashes of color throughout the house using items such as towels and soap in the kitchen and baths and use candles to help keep the house smelling clean and fresh. You can also add splashes of color with house plants and/or flowers. If there is any furniture in the home, make sure that it clean of debris and that it is covered with decent throws or tables clothes if the surfaces are not in great shape. You may also want to invest in new blinds or curtains periodically as they tend to show signs wear and tear after a couple of years.
You can find other home staging tips at the Home Buying Institute’s web site at http://www.homebuyinginstitute.com/staging/
Feel free to share other steps that you make to dress up your investment properties.