Categories
PURCHASE

Buying Your First Rental Property? Here’s What You Need to Know

Like any investment, buying your first rental property entails some risk. But, the rewards can be pretty sweet, too. Ready to become a real estate mogul—or, at least, the proud owner of your first investment property? Let’s get into the pros and cons.

The pros of buying your first rental property.

  • No private mortgage insurance required
  • Tax benefits
  • Rental income
  • Diversifies your assets

1. No private mortgage insurance required

Most loans for a primary residence (the house you live in most of the time) will require you to pay some kind of mortgage insurance. This is insurance that protects your lender if you default on your payments. You won’t have to pay private mortgage insurance on your rental property, so that’s one less monthly fee to worry about. You may still want to invest in landlord insurance, though.

2. Tax benefits

Remember how your home loan for your primary residence qualified you for write-offs? There’s more where that came from. Buying a rental property could qualify you for tax deductions like:

  • Mortgage interest: Mortgage interest is considered a business expense for your rental property, so you can deduct it using your Form 1098. You should receive this from your lender at the beginning of the year.
  • Property taxes: The property taxes for your rental property will depend on its location and how much the home is worth. To deduct property taxes, you’ll use Schedule E (Form 1040).
  • Depreciation: Like a car or computer, your rental property loses value each year as it accumulates more wear, tear, and general aging. This could actually work to your advantage, though, because you can deduct that depreciation on your tax return. You’ll use Form 4562 for this deduction.

You may not qualify for every possible write-off, but some other potential tax benefits include deductions for repairs, transportation expenses, and advertising costs. Filing can be a little more complicated than it would be for your primary residence, so it may be helpful to consult a tax professional rather than filing on your own.

3. Rental income

This perk is one of the obvious reasons that many homeowners decide to buy their first rental property. Rent is currently rising, which means you could enjoy a significant boost to that monthly rental income depending on where your property is located. Just don’t let all that power go to your head.

4. Diversifies your assets

Having a variety of assets to your name is a fundamental investment strategy, and buying your first rental property is a great way to diversify. Since you have more control over it, can sell it when you’re ready to move on, and its value rises with the market, a rental property can be one of the less risky ways to invest. Speaking of risk, let’s explore the cons of buying a rental property.

The cons of buying your first rental property.
  • Higher interest rates
  • Higher down payment
  • It can take a while to see a return
  • Risk of unreliable tenants
Higher interest rates

Because your lender is taking a bigger risk in financing your investment property than they would be for your primary residence, you can typically expect higher interest rates on your rental property’s mortgage.

Higher down payment

Depending on the type of loan you choose for your primary residence, you could put down as little as 3%. In fact, VA and USDA loans require no down payment at all. For investment properties, on the other hand, you’ll need to put down at least 15-20%.

It can take a while to see a return

If you’re looking to get rich quick, a rental property is not the way to do it. In addition to closing costs, you may also have to put in more money up front for home upgrades like fresh paint, new appliances, and updated landscaping to make your property appealing to renters. And, you may not fill your vacancy right away. It could be weeks or even months before you find tenants and start receiving steady rental income.

Risk of unreliable tenants

We believe everyone deserves a place to call home—but that doesn’t mean every tenant will make your job a breeze. If you’re not sure you can handle the awkwardness of following up on missing rent payments, addressing maintenance issues, and generally taking responsibility for the state of your rental property, being a landlord might not be for you. And before you get too frustrated with your renters, just keep in mind that we’ve all made a landlord’s life a little harder at some point.

What to look for in your first rental property and what to avoid.

Choosing the right rental home can make all the difference in the return you enjoy down the line. Here are some dos and don’ts to keep in mind when you start your investment home search.

Do:

  • Make location a priority. Are there restaurants and shops nearby? What’s the crime rate in the area? Make sure the property is in a location that will attract renters.
  • Avoid fixer-uppers. The more you have to fix, the longer you’ll have to wait to take on tenants and see a return on your investment.
  • Research the local housing market. To make sure you offer a fair rent and pay fair rates for your mortgage, do your research and know what to expect from the market. A real estate agent will know all the ins and outs of the local area, so you may want to consider working with one for your investment home purchase.

Don’t:

  • Start with a large property. Smaller residences like condos and single-family homes are less work and less risk for your first time around.
  • Invest without another source of income. It might take a while to profit from your rental property, and it’s true what they say: You have to spend money to make money. Be sure to have an adequate cash flow available before committing to that landlord life.
  • Try to do everything yourself. From your real estate agent to your tax consultant to your loan team (hey, we know a good one), there are a lot of specialized professions involved in buying a rental property. You could do it all by yourself, but you may miss out on opportunities to save or make money that an expert would catch.

So, now you know the basics of buying your first rental property. When you’re ready to get started, our team is here to help. In the meantime, happy house hunting.

This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making the decision to buy or refinance a home.

Buying your first rental property can be complicated, but it’s a lot easier when you know what to look for. Hint: Location, location, location.

Categories
PURCHASE

8 Things Every First-Time Home Buyer Needs to Know

Eight things first-time home buyers need to know before they start shopping.

It’s about that time, isn’t it? Paying rent every month for an apartment you don’t own is finally getting to you. Or are your parents telling you it’s time to move out and get your own place? Do you need extra space for your dogs? No matter the reason, buying a home for the first time can be an overwhelming experience if you don’t know what you’re doing. That’s not you though. One way or another, your extensive research on the home buying process has brought you here, so you’re on the right path. You’ll be ready to make a final decision on a home in no time, but first, here are eight things every first-time home buyer need to know before they get started.

1. Your credit score

This may sound like a no-brainer, but you’d be surprised at how many people don’t know their credit score or haven’t even thought to look at it. If you’re one of those people, stop reading, open up a new tab, and do some research on what goes into a credit score, what affects it, and how to obtain it before you read any further. Your credit score can make or break your chances of getting a mortgage depending on how high or low it is, but there are ways to improve it if you find your score needs some work. While there’s no set credit score that you need to buy a home, it’s better to be safe than sorry. Be sure to clear any inaccuracies or bad debt before you apply for a mortgage.

What Does My Credit Score Need to Be to Buy a House?

Your credit score can make or break your chances of getting a mortgage depending on how high or low it is, but there are ways to improve it if you find your score needs some work.

2. Your loan options

Once you know your credit score, you should have a much better idea of which loan options would be available to you. Most lenders will have a general overview of their loan products on their website with a target credit score. But depending on whom you choose, there could be some wiggle room there. Don’t stop at skimming through a website. Check out our blog for an in-depth rundown of the different types of mortgages and how they may fit your needs. If you’re serious about buying a house, get in touch with a loan originator and find out where you stand.

3. Location vs. space

As a first-time home buyer, there are a lot of options and factors you’ll have to weigh. Two of the most important are location and space. Depending on where you are in life, you may have different priorities where it concerns these two factors. If you’re single, you may want to prioritize location above everything else. If you’re moving with a family, space might be more important than being in a happening part of town. It’s important to have clear priorities so you don’t give up too much of what you’re looking for throughout the house-hunting process.

4. Saving for a down payment is a good investment

If you’re ever caught between saving for a down payment or putting those savings toward an investment opportunity, remember that you won’t lose money investing in your home. Many people choose loans that either don’t require money down or require a very low percentage. Then, they end up losing money by trying to invest in something other than their home. A substantial down payment goes a long way in minimizing risk and getting you started off on the right foot with some equity. Make sure to start saving as soon as possible to make a sizable dent in your total home cost.

A substantial down payment goes a long way in minimizing risk and getting you started off on the right foot with some equity.

5. A good real estate agent makes all the difference

If it’s your first time buying a home, you’re going to want some help. A great real estate agent can take a lot of pressure off you and really help streamline the process. Find someone who comes highly recommended, either from a friend, family member, neighbor, or co-worker, and let them work for you. The right agent should be experienced, skilled, motivated, and knowledgeable about the area in which you want to buy.

6. Schools matter

If you think you might have kids (or you already have some), it’s important to explore the schools in the vicinity of any home you plan to buy. Are the schools a good fit for you and your family? Do you have other options if the school you’re zoned for isn’t a great fit?

7. Don’t jump until you’re ready

Buying a home isn’t a process that should be rushed. It’s a huge commitment, more expensive than people realize, and not one that should be taken lightly. Before you buy a home, make sure you know exactly what you’re getting into so you can decide if you’re ready from a financial and personal standpoint. Find out how much you’ll be paying in addition to your monthly mortgage payment. That includes property taxes, homeowners insurance, HOA fees, and other monthly costs. Once you have all that settled, you’ll be in a good position to decide if you’re ready or not.

8. Stick to your budget

That’s what it’s for, right? Look for properties that cost less than the amount you were approved for initially. Even though you can technically afford your pre-approval amount, you should use that as a ceiling. That’s because it doesn’t account for the monthly expenses we listed earlier or any other repair costs that may arise during homeownership.

Home shopping with a firm budget in mind will also help you when it comes time to start making offers. In a competitive market, it can be tempting to make a high-priced offer on a home you love. But it’s important not to let your emotions get the best of you. Shopping under your pre-approval amount will allow for some wiggle room for bidding and will help you avoid a mortgage payment you can’t afford.

Think you’re ready to take the leap and become a homeowner? Call us today and let’s get you started.

Categories
HOME & GARDEN

10 Interior Design Tips for Every Budget

If current rates have you staying put, that doesn’t mean your decor has to stay the same, too. There are plenty of great ways to use interior decorating to refresh your space while reaching your savings goals. So many great ways, we couldn’t fit them all into this blog. To get you started, here are our top 10 interior design tips for a home that’s easy on the eyes and your bank account.

Top 10 Budget-Friendly Interior Design Tips

  • Reorganize and rearrange
  • Declutter
  • Repaint your trim
  • Replace fixtures
  • Thrift accent pieces
  • Add a pop of color to smaller furniture with paint or wallpaper
  • Support local/independent artists
  • Don’t forget the frame
  • Splurge on one item that makes a big difference
  • Be patient

1. Reorganize and rearrange

Before you consider purchasing new furniture and decor, take inventory of what you already have. Whether it’s adjusting the angle of your couch, moving those throw pillows to the bedroom, or rearranging your gallery wall, a new look doesn’t have to mean new stuff.

2. Declutter

Interior decorating isn’t just about adding new pieces—what you take out can have just as much impact. And, if you’re moving on from pieces that are still in good condition, you could actually resell them and make money off your redecorating plans rather than lose it. Pro-Tip: Not sure where to start? Ask yourself WWMKD: What would Marie Kondo do?

3. Repaint your trim

Painting is one of the cheapest ways to update your home’s look, but repainting entire rooms can be a lot of work. If you like work, more power to you! Otherwise, simply repainting the trim in your home can make a big difference for a small amount of money and effort.

4. Replace fixtures

When it comes to interior design tips on a budget, it’s all about the little things. In this case, swapping out knobs and handles on your cabinetry and furniture is a quick way to add character to your space and tie your rooms together. Unlike more work-intensive projects, this interior design tip is quick, mess-free, and easy to do yourself.

5. Thrift accent pieces

Thrifting can be hit or miss, but by sticking to smaller accents like lamps and side tables, there’s a good chance you’ll find quality pieces that fit your budget. Especially if you’re aiming for a more eclectic look over modern minimalist trends, thrifted furniture can bring a space together in a way that’s truly unique. Not to mention, it’s good for the environment and most vintage stores are independently owned and operated.

Pro-Tip: Nail your vintage purchase with this handy list of furniture thrifting considerations.

6. Add a pop of color

From repainting your bedside table to wallpapering the interior of your bookcase, a little color can turn a standard piece of furniture into a statement. Don’t be afraid to try out multiple patterns and palettes. If you change your mind later, you can always repaint again. And in this case, fortune really does favor the bold—it’s often easier to find bolder colors on sale since they’re generally not as popular as neutrals.

7. Support local/independent artists

Real talk: Fine art pieces are out of the average person’s budget. That doesn’t mean you have to settle for recreations and reprints. Seek out local (or independent, “local” is a relative term in the digital age) artists for unique pieces at reasonable prices. Just don’t try to haggle them to even lower prices. Remember that you’re paying them for the years spent learning their craft, the materials, the hours spent creating it, and the originality—not just the piece itself.

8. Don’t forget the frame

Unframed movie posters might be a coming-of-age decor right of passage, but you’re an adult now. That means you need to frame. Your. Art. The right frame can elevate a photo or art print you already have, create dimension on your walls, and bring texture to your interior. From simple custom frames to vintage scores, there are endless affordable options to express your style.

9. Splurge on one item that makes a big difference

Sometimes, it pays to pay more. If you’re thinking of replacing focal items like your couch or bed, you’ll save more in the long run by buying quality pieces that stand the test of time. It’s ultimately up to you to decide what’s worth splurging on based on how you use it. If you work from home, you may want to spend more on a great desk and comfortable chair. For families with kids and pets, a durable couch might be the priority. And if you’re a vampire who never sleeps, we understand if you’d rather invest less in your bed.

Pro-Tip: If you’re not sure how to prioritize what’s worth the splurge, check out this breakdown of essentials.

10. Be patient

All those home renovation shows make one big, complete transformation seem like the way to go when you decide to refresh your decor. Realistically, though, decorating your home is an ongoing process. Don’t spend money on pieces you don’t love just for the sake of filling a space. Take your time, buy as your budget allows, and don’t settle for anything that doesn’t feel like you (are we still talking about interior decorating?).

Any other interior design tips to consider?

The most important interior design tip we can give you might seem counterproductive to this whole blog you just read, but here it is: Trust your own taste over any interior decorating advice you might receive. Tips and tricks are a great place to find inspiration, but it’s ultimately your home, your budget, and your call. And if redecorating gets you thinking about larger-scale renovations, we’ve got a loan for that.

Thrift, paint, repeat. Try these easy interior design tips to give your home a fresh look without compromising your financial goals.

Categories
PURCHASE

Should You Buy or Sell First?

So you’re ready to move, but should you buy or sell first?

It’s time. Your family’s getting bigger and you need more space, or maybe you’ve got an awesome job opportunity somewhere else. No matter what’s causing you to consider moving, there’s always going to be that one tricky question. Should I buy a new home, or sell this one first? It’s a common problem. Managing the sale and purchase of two homes at once takes a lot of planning. Unless everything turns out perfectly, there’s likely going to be a time in the process where you either don’t own any houses, or you own two at once. So, which one is better?

The pros and cons of selling your home first

Pro: Fewer mortgage payments

One of the biggest perks of selling first is that you won’t be responsible for two mortgages at once. That relieves some of the pressure to lower the price of your home or sell it quicker than you wanted to. Selling your home allows you to access the equity you’ve built, which can come in handy when you’re looking for a place to stay or store your things in the meantime. You can even put it toward a down payment on your new home.

Most of us don’t have the money to make a down payment on a new house or the income to keep up with two mortgage payments indefinitely, so selling first may seem like the obvious choice. But even though you won’t be paying two mortgages, you’ll still be spending your money on the things we just mentioned.

Con: Finding housing during the transition

Finding a place to stay and store your things can be expensive. If you have friends or family you could stay with for an extended period of time, that may be your best bet. The downside is you’ll essentially be moving twice, and it puts pressure on you to find a new house as soon as possible. But if those aren’t problems for you, selling first may be in your best interest.

The pros and cons of buying your home first

Pro: Flexibility of contingent offers

If you want to move directly into your new home without a pit stop in between, you’re going to want to buy first. It may not seem ideal unless you’re sitting on a mountain of cash, but there are ways to make it work, even if your bank account is a little more down to earth.

Your best bet if you’re trying to buy before you sell is to make a contingent offer on your new home. What this means is that you’ll enter into a contract to buy the new home if and when you sell your current one. The contract will have an expiration date, so you can’t promise to buy your new home, then take your sweet time selling your old one.

Con: Contingent offers don’t always carry weight in a hot market

If the house you’re looking to buy is in high demand, a contingent offer may not get much consideration from sellers. A seller is already worried about selling their own home, and with a contingent offer, you’re asking them to worry about you selling yours, too. Contingent offers also take away most of your ability to negotiate. The asking price will likely be the floor, not the ceiling, of your offer. It’s important to talk to your real estate agent about whether a contingent offer makes sense in the market you’re looking to buy in.

Pro: Bridge loans.

If the conditions aren’t right for a contingent offer, all hope isn’t lost! Assuming you’ve built up some equity, you can use your current home to finance your next one. Bridge loans are short-term loans designed to help bridge the gap between buying and selling. You can get bridge loans to either pay off your existing mortgage and provide a down payment on your new home, or you can get one just for the down payment. Be careful though. Bridge loans are considered high-risk, so they’re harder to get and usually come with a higher interest rate.

So, should I buy or sell my home first?

The right choice for you is dependent on your financial situation and the conditions of the local market. In a buyer’s market, you’ll have more leverage as a buyer so a contingent offer may be the way to go. In a seller’s market, selling your home first may be the strategic choice. Our advice? There’s safety in numbers. Give our mortgage calculator a spin to see what’s possible.

Only you can answer the question of buying or selling your home first. But we can certainly offer some expert advice to help make your choice clearer.

Categories
PURCHASE

House Bidding Wars: What to Expect and How to Win

Buying a house these days can feel a bit like the frenzy of Black Friday shopping—minus the low prices. While these might not be ideal conditions, life doesn’t wait for the market to change. When you need a house, you need a house. So, let’s dig into some helpful house bidding war strategies to help make your purchase process as smooth as possible.

Top 5 House Bidding War Strategies

  • Get pre-approved
  • Lower contingencies
  • Include an escalation clause
  • Stay flexible
  • Don’t give up if your first offer isn’t accepted

Get Pre-Approved

As you’ve started researching your home purchase, you may have heard of pre-qualification and pre-approval. Both are good to have, but only pre-approval will help you sweeten the deal with your seller.

Pre-approval is a preliminary loan offer made after a full review of your financial information. It’s good for up to 60 days, and it essentially lets sellers know that if they accept your offer, you already have financing lined up. If 60 days pass without an accepted offer, don’t worry. You can always renew your pre-approval, but keep in mind that rates change frequently. So, the amount you get pre-approved for when you renew could be different from the original estimate.

Lower Contingencies

Contingency clauses in your offer allow you to walk away with your earnest money* if the seller doesn’t meet the outlined conditions. Some common contingencies include selling your current home before buying the new one, walking away if the appraisal comes back lower than expected, and requesting repairs. While it’s good to protect your interests as the buyer, sellers tend to (understandably) favor offers with limited contingencies. If you’re having trouble prioritizing, ask yourself which contingencies are essential to staying within your budget.

*Earnest money is a deposit made to the seller that assures the purchase agreement is reliable. Usually, it’s 1–3% of the purchase price. This deposit will count toward your down payment and/or closing costs.

Include an Escalation Clause

When you bid on a house, consider leaving some wiggle room in your budget for an escalation clause. This clause sets the baseline amount you’re offering, but also includes the highest amount you’re willing to pay if someone bids above your offer. Keep in mind that house bidding wars aren’t like an auction with real-time back and forth. You just have to submit your best offer and hope nobody’s submitted a better one. An escalation clause can help you make a stronger offer, and you’ll only have to pay that higher amount if the seller proves there was a competing bid above your baseline amount.

Stay Flexible

In a big financial decision like a home purchase, it can be hard to stay flexible and still meet all your needs. But the more you’re able to accommodate your seller, the better your chances of winning when you bid on a house. Usually, that means being open to later closing dates to allow the seller more time to move out. After all, they’re just a person who is likely going through the same purchase process as you are for their next home. Remember the Golden Rule you learned in kindergarten? Treat others the way you want to be treated. Unlike in kindergarten, now it might just be the difference between buying the home you want or starting over.

Don’t Give Up

Speaking of starting over, there’s always a chance your bid won’t win in spite of your best efforts. Don’t let it get you down, though! It happens to the best of us, and all you can do is figure out what went wrong and do your best to fix it for your next offer. The right real estate agent can help you strategize ways to improve. Some common fixes include:

Any other tips for winning house bidding wars?

  • Maybe the real win in a house bidding war was the friends you made along the way. Actually, it’s how much you learn from each offer. Even when you lose, knowing what doesn’t work gets you that much closer to knowing what does. Through it all, let an accurate budget be your compass. Calculate how much home you can afford, the easy way, with our affordability calculator.

    And don’t forget the training montage music. It helps, trust us.

House bidding wars are competitive, but we’ve got tips to help you nail your game plan. First up: Get pre-approved.