Are you considering investing in real estate in the Austin area? While investing in real estate can be lucrative, there are some things to consider prior to purchasing your first rental home. To ensure you are up to the task, here are several questions to ask before buying an investment property:
What are your financial goals?
Before purchasing a property in the Austin area, consider asking yourself these questions. Do you see the rental property as additional income every month? Or, is the rental property a long-term investment, where you see the home appreciating in value? The answers to these questions will help both you and your REALTOR® find the perfect rental property for your financial goals. Once you answer these questions, make sure to stick to your decision! You don’t want to purchase an investment property that doesn’t meet your expectations.
Can you afford the extra expenses associated with a rental property?
A rental property takes a lot of work and extra money you may not see when you first make the purchase. What additional expenses could you encounter? Here are just a few:
- Mortgage Payment
- Property Taxes
- Homeowners’ Insurance
- Property Management
- Homeowner’ Association Fee
- Vacancy Rate
- Maintenance and Repairs
If you are handy with repairs, you can cut down maintenance expenses a little – but, not significantly. To prepare for these extra costs, consider putting aside a reserve fund – an “in case of emergency” fund for any unforeseen expenses you may encounter.
Which area is right for you?
What type of renters do you foresee living in your rental property? If you’re targeting families with children, consider purchasing a property in a quiet neighborhood in one of Austin’s top school districts. Or, if you want your property to appeal to 20-year-olds, consider buying a property in one of Austin’s trendy neighborhoods with local shops and restaurants within walking distance. If you need advice on where to look, for either of these rental groups, give TALK Property Management a call. We would be happy to provide guidance on helping you find the perfect rental neighborhood in the Austin area.
Are you in good shape, financially?
Purchasing a rental property is entirely different than buying a primary home. Most rental mortgages require a larger down payment than that of your main residence. However, if you take out an FHA loan, you may qualify for a down payment as low as 3.5% of the purchase price. Also, since you are not planning on living in the rental property, you need to secure a standard mortgage loan with the following federal requirements: financial reserves based on property value, the number of rental properties you currently own, creditworthiness and more. Click here to read more about the federal requirements.
Lastly, before you decide to begin the search for a rental property, be sure your credit score is in good shape. A good credit score gives you a lower interest rate, meaning less money spent over the length of the loan. Use these credit sites to check your credit score before beginning your search: Transunion, Experian, and Equifax.
Does the math work?
For a rental property to make sense – it should meet these math requirements:
- The 1% rule: If the rent is 1% of the sale price, it is worth looking at!
- The 50% rule: “You want a mortgage payment (not including taxes and insurance) to be less than 50% of the rent!
Did you ask yourself these questions? If you did, and you’re still ready to purchase an investment property in the Austin area, give us a call. We would be happy to help you search for your ideal investment property!
Resources:
https://www.biggerpockets.com/renewsblog/2015/09/14/5-questions-buy-rental-property/
