Buying an Investment Property Over a Step-Up Home
We are at the stage of our lives when we are “supposed” to buy that step-up home with upgrades and more space. Instead of spending more money on one nicer home, I rather own two starter houses. We can continue to live in our home and use the second property as a rental. According to a recent article by Market Realist, existing home sales are flat. Home prices are up almost 8 percent compared to a year ago. With inventory still tight, it’s a lot easier to wait for the perfect deal on an investment property than it is to get into bidding wars over our “dream home.” If we still want a step-up home when we are older, we can always change our minds.
Staying within budget
One of my friends was able to qualify for a step-up home before selling his starter home. I suggested he rent out his starter home instead of selling it, but he said it would be too difficult to cover two mortgages if the renter didn’t work out. After refinancing our home and lowering our payment, we can qualify for another small mortgage. Our budget is about $100,000 to $150,000, which would buy a 3-bedroom short sale in Florida.
Putting money aside
At this point, we don’t have enough money saved for the maintenance on a rental property. My goal is to double our home improvement fund to include our primary residence as well as the investment property. Most of the homes in foreclosure in my area are between 5 and 15 years old. Some of the banks have replaced roofs, but few put in new air-conditioners. We plan to put $100 aside out of the rent each month to cover repair costs.
Competing in a tricky market
Becoming a landlord after the housing crisis isn’t an easy task. On the one hand, professional investors are buying up a lot of properties and raising the rent. On the other end of the spectrum, some homeowners are renting out their homes at a low cost because they stopped paying on their mortgages. But even before we worry collecting rent, we have to find the right rental property. Professional investors tend to purchase the foreclosures and short sales with cash. Finding the right Realtor who specializes in finding investment properties has helped the process.
First-time homebuyers could find better deals by buying foreclosures and short sales, but I’ve noticed many young people in my community gravitate toward new homes. According to Market Realist, first-time homebuyers made up 30 percent of the new home sales, which is below the 40 percent historic level. Still, it’s slightly higher than earlier this year. I’ve never purchased anything but a new home so buying a short sale as an investment will be a different experience. With new home prices as high as they are, it seems only a matter of time before the new home today becomes the short sale or foreclosure of tomorrow.