Investment Home

7 steps in the investment Home buying process

When you make a decision that you and your family are read to start the process of looking for an investment home it is important to understand the invest home buying process.

Why Invest In Real Estate?

There are several reasons you may choose to purchase an investment home.  Some of the most common reasons are:

  • Second home in an area you vacation in or have family near
  • Rental Income (Monthly, yearly, overnight)
  • Typically Real Estate is the one investment that never depreciates long term
  • Purchasing a retirement location now

The area I want to focus on in purchasing an investment home is going to be the rental market.  As a long time member of the rental market owner family I have learned many lessons and all of them the hard way.

There are obviously several key factors to choosing an Investment home

  • Location – In real estate we always have to start with location.  Location is pretty much the only thing you cannot change after purchase
  • Amenities – What does the home offer?  People who rent properties rent for what the property offers.  I will expand on this below this article to keep bullet points short.  So, see below for more information
  • Condition – Unless you are independently wealthy or specifically looking for a “TLC” Investment home it is important that you choose a property that at least has “good bones”
  • Occupancy – If you have read my other article, INVESTING STRATEGIES, you will know that I call “occupancy king”.  This is especially true in the overnight investment home market.  Each bedroom and sleeping area has a definite value associated with it.

What is the actual process of purchasing an Investment Home?

This is a wonderful question and I have narrowed the process to essentially 7 key steps

  1. Narrow down a location
  2. Determine how much you want to spend/borrow
  3. Get pre-approved from a good lender
  4. Select your property based on what fills the most of your wants/desires
  5. Go into contract on the property
  6. Begin your due diligence
  7. Close on your property

7 key steps to purchasing an investment home expanded

Narrow down a location

When you make the decision to purchase an investment home you have to decide on a location.  There are several reasons you may have decided to invest in real estate.  The 3 most common reasons people choose are:

  1. expanding their portfolio in an area close to them (within 2 hour drive)
  2. Interested in purchasing a home in a favorite vacation destination (Gatlinburg, Nashville, etc)
  3. Wanting to purchase a home in a booming market area (Such as Florida in the early 2000’s)

Once you have your location in mind you would want to choose a REALTOR in that area that you believe will best be able to help you.  One of the first questions you need to ask the REALTOR is pros/cons on specific locations.  For example, Gatlinburg and Pigeon Forge have very specific locations that will mater to perspective guests.  Convenience or view is going to come up a ton when someone is deciding weather to rent from you or not.

Determine how much you want to spend/borrow

It is so important for you to make this decision prior to getting pre-qualified on a mortgage if you are getting one.  Just because you can borrow $500,000 doesn’t mean that you should or even want to.  Even if you are looking to invest in a rental that you believe will cover your overhead you always have to plan on vacancy.  Even the best properties in the world will have vacancy tendencies.  If you are looking to purchase in the overnight area you need to understand that there are peak times and off times.  The term solidifies itself.  You have the potential to really make a great amount of money during peak times however during low times such as January and February you may find yourself covering the mortgage yourself if you did not do a COST SPRED APPROACH (LINK TO THIS ARTICLE)

Get Pre-Approved from a reputable lender

When you are choosing a lender, it is important that you choose someone that is reputable.  One of the best thing you can have is a good referral from someone that has used that lender in the past.  Even though I cannot give specific advice on your lender, I can give you a list of brokers that I have used in the past both with my clients and for me personally.

Select your property based on what fills the most of your wants/desires

How many times have you watched an episode of house hunters and the buyer tells the REALTOR the list of things they want and it includes everything from heated tile floors to 4,000 square feet on the water and wanting it for under $200,000.

Purchasing an investment home is your opportunity to get what you want as long as what you want is within reach for the area and budget you have set up.  When you speak with your REALTOR decide what you are trying to get out of your property.  Are you looking for maximum profits?  Maximum re-sale potential?  Newness of the property?

A perfect example is you may end up spending the same amount for a 1,500 square foot home built in 2016 as someone else may pay for a 2,200 square foot home built in 1999.  There are obviously pro’s in purchasing a newer home (wear and tear, more up to code, updated, etc) however there is going to be a cost associated with that.

Go Into Contract on the Property.

A prerequisite to the contract is obviously determining the offering price.  Remember that making a solid officer is an art.  The term “solid” needs to be just that.  Depending on what area you are in or what market season we are in will all go into presenting a good offer.  If you are in a very proud area the last thing you want to do is try and lowball someone.  You are going to be met in a way you will not like.

Several factors should be considered to presenting a solid offer.  For more information on presenting a solid offer read my post on PRESENTING THE BEST OFFER.

Begin your due diligence

Once your in contract the due diligence portion begins and at a relatively quick pace.  Some of the most important time sensitive due diligence is:

1.  Submit your earnest money check according to the terms of your contract

2.  Schedule your home inspection/self inspection

3.  Submit your documents for securing the lender.  Work directly with your lender on those timelines

4.  Conduct your inventory inspections (appliances, furniture (if included), etc)

5.  Conduct your final walk through

Close on your property

Last step into the process is to close on the property.  The 2 most common ways to close on the property are either an in person close or a mail away a closing.  One of the most important things to do during the closing is ask ANY/ALL questions you have if the owner is present.

If you are purchasing an established home especially in an area like East Tennessee usually the owner knows something you want to know.  Some things are:

1.  Where is the septic tank located?

2.  Who is the gas with?

3.  Anything I would want to know about the house?  Like….best place for satellite dish or cable companies/internet companies that were better for them then others

4.  Who delivers to the house?

These are questions that you would not ask during the due diligence period but will really help you get settled quickly.

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