CLEANING UP THE MESS: HOW PICKING UP THE PIECES CAN MAKE YOU MONEY
February 11th, 2009 categories: Buyer Strategies, Mortgage & Finance
Investing can be a tricky thing if you’ve never tried it before.
With so many options out there, it’s hard to know whether stocks, bonds, or mutual funds may be the best bet for your hard earned money. Because of the uncertainty out there, many have chosen a much more tangible product to help their money grow: real estate. Foreclosures are a hot commodity right now, so if you have some extra cash lying around, and you are thinking about an investment property in the Northern Virginia area, it may be time to invest in one.
I know what many of you are probably saying right now. “This guy is nuts.” Sure, with the market being the way it is today, it is easy to shy away (or even run) from real estate. People have lost their money and homes in record numbers over the past few years. The mess created in the wake of the storm makes us all want to yell, “Clean up, aisle America!” Only time will tell, but those willing to clean up the mess will most likely end up positioned very well when the next wave of buyers comes through.
Buying an investment property is not as hard as it looks. The first thing to point out is that with all the foreclosures out there, the inventory is almost overwhelming. You will certainly have your pick of the litter. Your real estate agent will help you narrow down your search to find exactly what you need. Either way, do not expect everything to be perfect. If you are looking at bank owned properties, remember that the people who lived there previously probably did not leave because they wanted to, so you have to keep this in mind and be careful about the property condition.
This segue’s us to the first pitfall. If you finance an investment property, make sure you have a financing contingency. If the house does not appraise as a “safe and livable” property, you most likely will not be able to finance it, so give yourself room to back out if the owning bank is not willing to make the necessary repairs. If the home has been winterized, make sure the water is back on, there are no leaks in the property, and that there is no existence of mold. If any of the above exist, chances are the new bank won’t give you the loan.
Next, expect to put 20% down at least. Investment properties are inherently risky for banks. It is much easier for a person to walk away from a home they don’t live in than one that shelters their family, so the bank wants to make sure you, as the investor, have a big stake in the property. The same is true of the rate. The added risk makes the loan harder to sell on the secondary market. To compensate, you will more than likely be charged a much higher interest rate, making your loan look more attractive to entities who are buying loans.
Lastly, though today is a 30 year fixed market, consider looking at adjustable rate mortgages (ARM’s). If you are only planning on holding the property a short while, a cheaper interest rate may be worth a bit of added risk if you can put extra money in your pocket in the end. Remember, this is an investment, so the whole point is to make money, and anywhere you can save, you come closer to achieving that goal.
The most important thing to remember is this: if you’re buying an investment property, don’t overextend yourself. There’s a reason there are so many foreclosures out there and you don’t want to join that party. You want your property to bring you money and fortune, not headaches and stress.
[Robert A, Martinson is a Loan Officer at Bank of America. Rob is like all of our Contributors: easy to talk to, and always happy to hear from our blog visitors! You can contact him at Robert.a.martinson@bankofamerica.com]
