As a young real estate investor, I get asked a lot of questions from first-time home buyers and potential investors. I started fairly young and have had my fair share of learning opportunities. Not only is it a passion of mine, but real estate investing is something more and more 20-somethings are beginning to do.
In some cases, experience is the best teacher. However, there are pieces of information I really wish someone had told me, before I purchased my first property. Hopefully, these top 5 real estate investment tips will save you some headache and expense.
Real Estate Investment Tip #5:
Any money you plan to use for the down payment of the home SHOULD be in your bank account for at least 3 months prior to requesting a mortgage. When it comes to investment property, mortgage companies are much stricter when it comes to gift money and cash flow. Let’s say you cashed in on a stock investment and suddenly had a $10,000 check written out to you. The bank wants to know exactly where it came from and see the paper trail for proof. To eliminate any questions, it’s best to take care of any out-of-the-ordinary cash transfers at least 3 months prior to applying for a mortgage. Typically, mortgage companies only need to see the last 3 months worth of bank statements. If you deposited a large sum of money 5 months ago, they won’t even see it. So save yourself the paperwork, headache, and time by making sure all the funds you’ll need are deposited long before you ask the mortgage company for a loan.
Real Estate Investment Tip #4:
There are a few key people who are best to have in place, prior to starting the process. If you don’t have a chance to do this before starting the process, it’s best to have them in place prior to making an offer on a home.
- Real Estate Attorney
- Mortgage Company
- Inspector (to inspect the home for foundation issues and termites)
All of these people will be extremely important in ensuring the process goes smoothly. It’s best to get referrals or recommendations from others who have purchased homes before. Above, I’ve included links to some of the companies I’ve used in the past. However, you should always do your due diligence before signing on with anyone.
Real Estate Investment Tip #3:
Don’t be afraid to negotiate. Real estate investing is not for the shy-at-heart. The sellers are looking to get the best deal, and so are you. I have always offered less than what my realtors recommended and I’ve always purchased at a price I was happy with. You need to do what you’re comfortable with, but you should expect to negotiate. You should expect the sellers to reject your first offer and counter with a higher number. If they accept your first offer, you likely offered too much in your initial offer.
In most cases, you’ll dialogue a few times with the sellers (through your realtor) to reach a number mutually acceptable. And in the words of our current President, Donald Trump, always be willing to walk away. They need you more than you need them.
Real Estate Investment Tip #2:
Make sure you have 6 months worth of mortgage payments in your bank account, prior to setting the closing date. I learned this one the hard way. We were less than 2 weeks away from my first closing when my mortgage company noticed I didn’t have enough funds to cover the first 6 months worth of mortgage payments. Thankfully, I had other means of cash that I was able to deposit into my account. In the entire process, no one told me this was mandatory, nor did anyone communicate it to me until it was almost too late. Had I not had enough money to cover the first 6 months of mortgage payments, the mortgage company would not have approved my mortgage.
*Worth Noting* To this day, I have never had a mortgage company tell me this was needed, even though I’ve started down the road multiple times and have closed on other properties since then. Some things you only learn from experience, so hopefully this tip saves you from the headache it caused me.
Real Estate Investment Tip #1:
Always expect it to be more expensive than the original costs you’re told. It’s an ongoing joke in real estate. There are always surprise costs that magically show up at closing. If you’ve priced everything out and you don’t have at least a few thousand dollars available, in the event things end up costing more than expected, hold off on your purchase until you do. Otherwise, you might find you’ve spread yourself too thin and you may not be able to close on the property.
Don’t bank on being able to rent it as soon as you close. Without fail, all of my properties took 6 months to rent. My tenants are phenomenal and have been living in the homes for a few years now. They were worth the wait, but if I didn’t have enough funds to pay the mortgage, HOA fees, taxes, and insurance in the meantime, I would’ve been in trouble.
Always anticipate needing to spend more than you were told and prepare accordingly.
Have Questions About Real Estate?
Thinking of trying your hand at real estate investing? I’d love to answer any questions you might have. Comment below and let’s get the conversation going!