Some first time home buyers choose to purchase an investment property as their first real estate purchase. If they cannot afford a property that they would want to live in, an investment property may allow them to enter the real estate market now rather than waiting. It is advised that they consult with their financial planner or CPA before taking this route.There are tax benefits to owning your own home as a principle residence rather than an investment.
The biggest issue to purchasing an investment property, especially in Hawaii is the down payment requirement. First time home buyers can purchase property with 0% – 20% down payment. Investment properties usually require 20% – 25% down payment.
The other big piece to finding a good investment property is the maintenance fee. Most investors look for a property in which their gross rental income can cover their expenses, including their mortgage, property taxes, insurance, and maintenance fee. Maintenance fees tend to increase between 2%-5% year after year and this must be accounted for when looking to cash flow on an investment property.
Real estate investors usually look to expand their portfolio and invest equity into new properties. A 1031 Exchange is a great tool used by investors to defer their capital gains tax upon the sale of an investment property and re-invest their equity into “like-kind” investment property or multiple properties. Find out more about 1031 Exchanges here.
Owner-Occupancy % –
This takes into account what percentage of owners in a condo building own their property as their residence or as an investment. Most lenders require that a building have a 50% owner-occupancy % for investment loans. Buildings with less than 50% owner occupancy still may be purchased as an investment but the down payment requirements and interest rates may be higher. Your mortgage loan originator and realtor should be on the same page when it comes to searching for investment properties so that no surprises arise after getting an accepted offer.
* It is best to consult with both your realtor and mortgage loan originator when looking to purchase a an investment property.