3 Quick Ways to Know if You’re Ready to Buy an Investment Property
By Kristin Creegan
Introduction
Florida’s Office of Economic and Demographic Research just released new data predicting that Florida’s population will grow by about the size of the city of Orlando every year until April 2026. Translation? Approximately 849 new people per day will call Florida home (http://edr.state.fl.us/content/conferences/population/demographicsummary.pdf).
While Tampa and Sarasota have been the biggest beneficiaries of attention by permanent snowbirds (https://www.foxnews.com/politics/chicago-new-york-residents-move-florida), our offices are receiving lots of phone calls from people around the country who are looking for that perfect investment property in the Central Florida area.
So how do you know if you are ready to buy an investment home or short-term rental (STR)?
You have cash – If you aren’t paying for the investment property in full, lenders want you to have at least a 20% down payment. Lenders also want you to have:
– Extra reserves in your bank account
– A lower debt-to-income (DTI) ratio score
– A great credit score
– A history of paying your current mortgage on time
Our in-house lenders have a few different investment loan programs that do allow some flexibility, but these are the general criteria to consider. Feel free to call or email our in-house lenders here: https://www.stfloans.com/.
Paying in cash? Cash is king and you’ll start reaping the rewards of passive income immediately. This leads me to the second way to know if you’re ready…
You love numbers – Investing is fun because it’s a logical numbers game. This isn’t an emotional decision that takes you on a wild real estate up-and-down rollercoaster ride. This is a logical, well-planned, and highly organized process that allows us to quickly say yes or no to properties, based on your goals. If the numbers don’t make sense, we don’t buy it. And I will run and help you understand them. Here’s how:
I run the comparable sales AND the current rents to make sure you are buying a property that will bring you returns, right from the outset. A 6% return is decent these days, while anything above that is amazing and anything below that means we need to reconsider.
Passive income is only possible if you know your numbers!
You are clear on your goals – What kind of investor are you? This will depend upon your goals.
Are you looking for price appreciation you expect the market to bring while enjoying passive income from renters? Or are you more high-energy and like big wins with profitable flips in a short period of time? Choose an investment style that is comfortable for you.
Pro Tip: While fix-and-flips look easy on TV, they are not! The flip will be more expensive than what you budgeted for, often dramatically so, and it will take three times as long as you envisioned (especially with our “supply chain issues”). You must also love all types of people, enjoy practicing patience, and be able to replace thoughts like, “what in the Sam Hill did you do” with “that’s fine, let’s just start over” before they come out of your mouth and into the ears of your overworked contractor.
Conclusion
The Florida real estate market is a wonderful place to make your first investment. With the state growing by over 800 people per day, and living near our fantastic theme parks, beaches, and hospitals, it’s hard to find a reason to not take advantage of this time in the market. I take a lot of the mystery and guesswork out of the investing process by running numbers first. If the numbers meet our goal, we move forward. If not, we pass. Like Dave Ramsey once said, “You can get anywhere if you simply go one step at a time.”
What is your first step?