HOW TO BUY YOUR FIRST
Buying your first investment property is a big deal. It is a huge asset for most individuals, and it requires work. Many individuals actually view owning a rental property as being more similar to a small business than an investment, because it involves customers (tenants) and vendors.
Buying Your First Investment Property
Buying your first investment property is a big deal. It is a huge asset for most individuals, and it requires work. Many individuals actually view owning a rental property as being more similar to a small business than an investment, because it involves tenants (customers) and vendors.
If you think you’re ready to take the plunge, here are some steps to consider…
First, you need to answer the question: how much can I borrow? To figure this out, you can use a mortgage calculator and plug in the basic property information (price, loan amount, etc.). Since this is a rental property, it is important to remember that you need to look at buy to let mortgages, not just regular owner occupied mortgages.
What is different is that lenders of buy to let mortgages look more at the property as an investment rather than whether the owner can afford it. This means that the lender will look at the potential cash flow and expenses of the property. They will most likely also compare rents of similar units in the area, and may even ask for a lease to be signed before underwriting begins.
Once you figure out the mortgage, it is important to look at the other costs.
Every property is going to have the following that will need to be paid by the owner:
- Property Taxes
You can usually get the property taxes quoted from your local assessor’s office. As for maintenance, a landlord needs to budget for repairs to the property, as well as landscaping if necessary. These can add up each month, so carefully plot out the costs.
For some maintenance, you may be able to recover the costs from the security deposit of the tenant if the damage was caused by them. However, wear and tear is not usually covered by this, and you will need to bank for it.
Other expenses can be covered by either the tenant or owner, and it depends on the situation:
The owner may want to pay for some utilities, such as water, because failure of the tenant to pay could damage the property, such as landscaping. Or, in circumstances where there are multiple units on one meter, the owner sometimes pays and includes utilities in the rent.
However, the tenant usually covers all expenses related to the interior of the unit, such as electricity or cable.
Calculating Your Potential Return
Once you’ve figure out your costs, and looked at the potential rent, the true test of any investment is the return on investment. Here is how you can break down the return on investment on a rental property:
First, take your total equity, and divide it by your annual return. You can calculate your annual return by doing the following:
Gross Income – Expenses (including mortgage payment) = Cash Flow
Cash Flow – Income Taxes + Principal Payment = Return
To calculate your return on investment = current equity / total return.
It is important to calculate this return annually, especially relative to other investments so you can compare your rental property’s performance. For a buyer, this is an essential calculation before buying.
Meet Greg Davis
with Rise Realty, LLC
Associate Broker, CRS, GRI, 5 Star REO Certified, RES.NET Certified, Equator Platinum REO Certified
1739 S. Jade Way, Suite 100
Meridian, ID 83642
With over 18 years of experience, Greg Davis is the Treasure Valley’s “Go to” agent and a consistent leader with a reputation for tenaciously protecting his clients’ interest. Savvy negotiations and cutting-edge marketing strategies join uncompromising integrity as the hallmarks of Greg’s service. Greg is exceptionally well-respected in Boise, not only for his unparalleled professional track record and being an honest, hard-working family man who does absolutely everything in his power to ensure his client’s success.
In addition to real estate, Greg loves people! His passion for building relationships and delivering stellar service to his clients are his top two priorities. His motto, “Honesty Before Advantage” makes every transaction a “Win Win” for all parties involved.
Beyond his love for real estate, Greg is also a dedicated family man. He loves to travel with his family and has been to Disney World more times than a grown man should be willing to admit. Greg has also served on short-term mission trips to Indonesia, Haiti and Ecuador with Mission Aviation Fellowship.
Thanks to his exceptionally loyal clientele, personal referrals and repeat business are the foundation of Greg’s career. To ensure efficient, complete service for you, Greg’s associates have been carefully selected from the very finest contractors in the business to form a close-knit “family” offering seamless assistance for every aspect of your home purchase or sale.
Please call Greg anytime without obligation. He is ready to work for you today!
- 1994 -2000 worked in sales at a startup software company. In 2000, the company sold for millions of dollars.
- 2001 became an Idaho Realtor while waiting out a 2 year non-compete clause in the Microsoft Arena.
- 2003 became an Idaho licensed real estate broker
- 2004 created two real estate companies
- 2006 Sold one real estate company for high returns (Payette Mountains Realty)
- 2008-2013 IMLS (Intermountain Multiple Listing Service) Board of Directors
- 2011-2012 IMLS President of Board of Directors
- 2015 – Sold other real estate company (Genesis Real Estate Group, LLC)
- Present – Associate Broker with Genesis Real Estate Group, LLC.
- Residential property sales including fine homes, condominiums, income properties and custom homes
- Exceptional attention to skilled negotiations, knowledgeable analysis of property values and market trends
- Expertise and renowned credibility in resolving difficult transactions
- Licensed Real Estate Broker, State of Idaho
- CRS – Council of Residential Specialist
- GRI – Graduate, Realtor Institute
- 5 Star REO Certificated
- NET Certified
- Equator Platinum REO Certified