Doing research ahead of time can go a long way to ensure success for customers looking to buy investment properties, and First Service bankers are there to help.
“I recommend customers do their homework first,” said Matt Carter, First Service Bank vice president and senior loan officer at Greenbrier. “Investing isn’t difficult, but customers can do a little research on the front side and avoid common mistakes. I often recommend books, ibooks, podcasts, etc. There is so much info out there.”
The most common investment properties are rental houses, duplexes and apartments as well as office buildings.
In addition to research, Matt’s second tip for potential investors is to plan by identifying their goals and working backward. “I encourage customers to ask where they want to be in five years. With this question, I am looking for numbers because they are the easiest to track. Answers often include: ‘I want five properties,’ ‘I want to double my income’ or ‘I want to make enough money from my properties that I can leave my 9 to 5 job.’
“I take that answer and work backward to see what a customer needs to do to reach their goal.”
Carter points out that purchasing an investment property is different from buying a personal home. “Investment properties are purchased using commercial loans instead of a consumer (mortgage) loan. Most customers say that the commercial loans are easier and require less back and forth with underwriters.”
There are some misconceptions when it comes to purchasing investment property, including down-payment requirements. “That is the beauty of these types of loans. When most people think of a down-payment, they think of bringing 20 percent of the purchase price in cash to closing. That is what keeps most people from ever investing, not having that lump sum of cash to get started. With investment properties, you still need a down-payment, but that can come from improvements done to the property, cash-value life insurance, equity in other properties, etc.
“There are several options for the down-payment.”
Owning investment property can have its rewards which have to be weighed against the challenges.
“The reward for owning rental properties is the passive income and having someone else pay for your properties, for you. For example, you buy a property and let’s say that property cost you a total of $750 a month to own. You then rent the property for $1,000 a month. In this example, you are making $250 per month but the money your renter is paying you is paying your property off. If you do a 20-year loan, the property is paid for in 20 years and you have made $250 per month for 20 years. The best part is, you didn’t have to use any of your own money.”
The challenges come from dealing with tenants, maintenance, etc. “Having a bad renter is arguably the No. 1 reason individuals get out of investment properties.”
While all banks offer similar loan products, First Service bankers work to set themselves apart by working harder for customers so they can make informed decisions. “I get calls daily asking about different properties, what I think a house might be worth, what I think a duplex would rent for, etc. We know our local markets very well so we know what areas are better than others. We know what subdivision is going in around the corner, and many of us also invest in similar real estate.
“We’re not just talking the talk; we walk the walk too.”
For help with purchasing investment property, call Matt Carter at 501-679-7300 to set up an appointment in person or by phone. First Service bankers are here to help!