5 Tips for Investing in Property
East Tennessee’s low cost of living, good climate and job creation trends are drawing many new residents to Knoxville. With an unemployment rate below that of the national average, the city has more residents that can afford to either rent or own. These strong fundamentals are good news for our housing market, and they also make investing in Knoxville real estate an attractive option.
Investing in real estate is a long-term play—you shouldn’t rely on prices to rise in the short term. And unlike your stock portfolio, you can’t sell part of your investment if you need the money. Risks are inherent in any investment, but the rewards with real estate can be great.
If you’re considering purchasing property as an investment opportunity, here are five tips to keep in mind.
1. Take the time to find the right property. Particularly if this is your first time investing in real estate, a solid property will be the key to successful returns. Look for low property taxes, a good school district, an area with low crime rates and amenities such as parks, malls, restaurants and movie theaters. Or in other words, choose a property that you would like to live in.
2. The type of loan you need depends on the type of property you purchase. Properties with one to four units are considered residential in nature and can be financed with a conventional mortgage. Anything over four units will need to be evaluated as commercial.
3. Choose your loan terms carefully. If feasible, I would recommend financing rental property on 15-year notes as long as your rent covers the mortgage payment. This will increase your equity position more quickly than a 30-year mortgage. Mortgage insurance doesn’t cover investment properties, so make sure you have enough saved up for a sizable down payment.
4. Watch the number of properties you finance. When it comes to financed properties, 10 is the magic number. If you go over 10 financed properties, you will be unable to receive any more conventional financing on future rentals.
5. Think long and hard about becoming a landlord. Running a property is different than owning a home. Keeping up with maintenance and legal issues is at least a part-time job, and a tough one at that. I recommend finding a property management company to handle your rentals. They typically charge 10 percent of the gross rent, but they will manage everything for you. They are professionals and will help you get the best possible value for your property.
If you’re up to the challenge of investing in real estate, now is a fantastic time. Rates are still at historic lows but may be increasing into 2016.
You have many options when it comes to financing your investment property, so be sure to discuss the pros and cons of each with a trusted mortgage advisor. Sound advice can make a big long-term difference to your financial well-being.
Clint Porter can be reached at 865-766-3089 or by email at clint.porter@pnfp.com.
