Over the last few months, interest rates have come down just a wee bit, and folks with money to burn are buying investment homes. They call me to get a “rate quote” for their proposed investment home purchases. Some calls I can handle with a straight face and without rolling my eyes. Others, I don’t know whether to laugh or cry because the deals, when you plug in the numbers, look downright stupid and are likely going to be a trainwreck now or in the future.
The person on the other end of the line, enamored with their shiny new object – which is the signed purchase contract on their investment home – cannot or does not see this.
Sometimes, we do the deal for the client. Other times, the client wants to “shop” around, and we never hear back from them.
Some deals that get done are borderline stupid. I picture a car being driven at full speed into a brick wall – this post is about not being the driver of that car.
Oh, and for some background/context here – I’ve been helping hardcore investors buy and sell real estate investments for the last 20 years. My clients get personalized service in that we look at areas to buy, price points to be buying at, expected rental income, monthly expense, net cash flow among many other things and I have helped over 100 clients buy investment homes across America (in the states we do business in, namely, AZ/CA/FL/WA/NJ). Some of my clients own multiple homes (with one guy owning over 150 single-family homes), and nearly all of them make bank as in they net cash flow at 6-20% cash in cash plus their home values keep going up. Besides that I too own a number of investment homes and each one is paying me 2X or more of the best short term T Bill rate you can find anywhere, so I think I am reasonably qualified to give you my take on whether the numbers on a home pencil out or not.
Here’s what I suggest:
- Buy an investment home where the numbers work today, not maybe in the future.
- Buy an investment home in an area where home prices are not currently “overvalued” today, as any downturn will only shave 5-20% off your home value in a matter of years.
- Buy a home in an area with an anchor for families to seek a home to live in – it may be a large employer (like Intel in Chandler, AZ), etc.
I hope this information is useful, and you don’t become the guy with broken bones and bandages in 1-5 years as you buy your home.
How We Can Help:
We can help you by preapproving you for a mortgage, running loan scenarios to ensure the numbers work, and connecting you to an award-winning agent who will find deals for you that are rental-friendly.
(Full disclosure: Our company gets paid when you complete your mortgage with us, and we also receive a referral fee from the agent we connect you to, which is a percentage of the buyer’s commission they receive once the home purchase is completed.)
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