Our First Rental Property!

We Bought Our First Income Property!

    My husband and I had a long conversation about investment options, and after discussing retirement and stock accounts, I brought up real estate.  We both got very excited about the almost immediate cash flow and equity that comes along with rental properties. There are lots of different ways to fund an income property, and when I tell you I spent days researching... I mean DAYS. I'd like to share our rental journey with you, from financing to finish!

    First, I know know I was lost when I was trying to navigate how to buy an investment property, so I'll start with the basics that I learned along the way. A home mortgage can be classified as primary, secondary, vacation, or investment. Most people who have bought/sold the homes they live in will be familiar with primary mortgage options, which I will summarize for you. Please keep in mind, these are tips that I've learned through my research, please be sure to do your own before going house shopping!

 A primary residence is one you live in for most of the year and it must be close to your workplace. You have to move in within 60 days of purchase.

A secondary home must be used as your residence for part of the year (at least 14 days), and you have use FHA or VA loans to purchase them. It may need to be greater than a specific distance from your primary home. This may be also considered a vacation home. 

An investment property is bought solely for the purpose of renting it out, so there is no requirement for location or for you to live in it (unless you use FHA/VA loan). This type of home will cost more for a down payment and must have insurance (PMI).

You can find a lot more information to answer your questions about this  here.

Since I was just getting started, and I live in base housing, I needed funding to buy the house. Here are the types of loans I explored:

FHA: An FHA loan is a home loan guaranteed by the federal government. the down payment is 3.5%, which makes it a very attractive option to use. However, you must meet the requirements to be eligible and you must live in it for the first year. Houses in this market go very quickly with usually no repairs made by the seller, which means if they are not up to FHA standards (hand rails on stairs for example), you may not be able to get the seller to make any changes in order for the house to be eligible for FHA. Here is a great link for more info, especially if this is your first rental property and don't have a huge chunk of cash ready.

VA: A VA loan is a wonderful tool for veterans, because the down payment is lower than conventional as well. Similar to the FHA loan, the home must be in move-in condition and approved by a VA appraiser. You must also live in this property for a year, and it can be a multi-family home with up to 4-units! This means you can buy the house and occupy a unit while collecting rent from the others immediately. You'll pay as little as no money down and be able to move right in.

Conventional: This type of mortgage is not backed by the government and you'll be expected to pay 20-30% down upon purchase of the home. This depends on the individual lender, which you can find out simply by calling or checking their website. This makes your mortgage payment slightly lower, but out of pocket costs much higher. These types of loans are riskier for the bank, which means you'll have to have a good credit score and history, as well as money in the bank to show you can afford the payments. Also, we discovered, the down payment CANNOT be a gift. 

    If you already live in a home that you have a mortgage for, you could potentially do a cash out refinance on your home and use that money for a down payment (or even all of the house if it's small!).A great option would be to rent out your current home and use a primary residence loan to live in the next house for a year while you prepare it for renters! 

Sadly, I had sold my home just before reporting for duty across the country, and I wish I had known about this stuff earlier! I chose a conventional loan, as I had some savings set aside to handle the higher down payment, and we didn't have the option right now to live in the home for the next year.

 The Waddell House

I'll leave a little photo of the house here, as a sneak peek!

  

  I'd like to tell you all about the Waddell house, before I get picture happy and flood the blog with photos and inspiration. We bought a 3 bedroom 1/5 bath that's about 8 minutes from the gate to our military base. I chose this house because not only is it cute, but the location is wonderful. It's a few minutes from our local college as well. We should have no problem finding renters! It was built in 2002, which means the foundation is in good shape and we don't have to worry about asbestos (score!). However, it needs a lot of updating and most of the utility equipment needs replacing (HVAC and water heater). 

     The house had a tenant in it when we bought it, who happened to be taking great care of the home and had good rental history (super rare in this market). We asked him if he'd like to extend his lease for another 6 months while I finished my deployment, and he agreed. Thankfully, we will be collecting his rent to cover the mortgage until I get home and start the renovation!

   When you're choosing your home, make sure to look at the surrounding neighborhood, distance to local attractions/colleges/major workplaces, and accessibility if you won't be living nearby. For example, once we move stations, it will be easy to commute here on a short flight, since the house is so close to several airports. You don't want to have to spend 20 hours traveling to your income property if something requires your immediate attention! We plan to hire a property management company to look over the house when we move, but we will be landlords for the next year or so before that happens.

Here you can see my hubby signing his life away as my POA at closing, since I was overseas!

Please stay tuned for more photos of the property, and step-by-step updates on the renovation and rental process! Subscribe to be notified about my next post!