Congratulations on deciding to become a landlord. Owning an income property can be extremely beneficial, but there is a lot to learn. Unless you will be making a cash purchase, financing will be one of the first things you should familiarize yourself with. Below are a few tips to get you started.
Learn the Terminology
There are many types of income properties, so you should begin by familiarizing yourself with the terminology. Using the correct terms will help your Realtor match you to the best property and allow your lender to provide the appropriate loan options. A single-family home is a unit on its own land designed for one owner. Multifamily housing is a blanket term for a single property with multiple units, such as a duplex or apartment building. A building with five or more rental units is considered a commercial property.
Select a Lender
It is vital to select the right lender when purchasing an investment property. Don’t just look for a lender with great reviews. You should seek out someone who specializes in financing multifamily units. An experienced lender will be able to explain your loan options, break down the benefits of each, and make recommendations. If you plan to live in one of the units, you should let your lender know that the property will be owner-occupied.
Save a Down Payment
Investment properties typically require a heftier down payment unless you will be occupying one of the units. For an owner-occupied, multifamily property, you potentially can put down just 3.5%. However, the most common down payment for investment financing is 25%. It is also common for loan interest rates to be higher if you are not putting it towards a personal homestead. That means it may be advantageous to put an even larger payment down upfront. Your lender should be able to run numbers and help you with your decision.
Create an Emergency Fund
Before you purchase your investment, it’s wise to create an emergency fund. You don’t want to spend all your liquid assets on down payments and closing costs. Keeping your tenants happy is necessary for a successful business, and that means being able to quickly fix emergencies such as broken furnaces, leaky pipes, or faulty appliances.
Before you take the plunge into being a landlord, follow these steps. The more prepared you are, the happier and more successful you can be in purchasing a great property.