Currently we have had an increase of client calls who are looking to purchase Income Properties from Los Angeles to San Diego. As prices have adjusted downward the ability for buyers to purchase an Apartment Complex from 2 – 50 units and see good cash flow is now a reality. With 25% down payment on a 2-4 Unit you can actually achieve cash flow in some very good rental areas. If you are looking for 5+ units typically you will be putting down a minimum of 30% or higher depending upon the Gross Rent Multiplier (Relationshiop of Total Income to the Sales Price).
One lender we work with is Terry Lee at Bank of America who specializes solely in lending for 1-4 Units. I had asked him to define the current Lending situation as of today – February 2, 2011, to better assist you as a buyer to get the best possible purchase…
Getting PRE-APPROVED with a DIRECT LENDER, (BANK), is more important than ever before. This is why;
1) Getting a loan has gotten to be a lot more complicated since the “credit crunch” hit a couple of years ago and having an experienced loan officer is ABSOLUTELY ESSENTIAL in guiding you through the process and getting your loan approved. An experienced loan officer will know how to package the loan and what the underwriters will be looking for, so the loan will get approved as quickly as possible. Often times the loan officer can make suggestions ahead of time which will allow you to qualify for a higher sales price or a smaller down payment by making some minor adjustments to your debts or down payment sources before you start the process. For instance, if you have $500 per month in credit card payments, that is about the same as about $100,000 in mortgage payment. So sometimes just paying off or restructuring a little debt can help you to qualify for a lot more. Your loan officer can often make suggestions on minor adjustments that can make all the difference in getting you what you really want in the end.
2) Serious sellers want to know that a buyer is qualified BEFORE they start negotiating. So getting a PRE-APPROVAL from a DIRECT LENDER, (a bank not a mortgage company), will show the seller you are a serious buyer who is capable of closing a real estate transaction and so deserves his or her attention.
3) If you are dealing with a bank owned property or a short sale situation, the lender making the decisions will REQUIRE that you are PRE-APPROVED or your offer will not be considered. They will want to see a solid letter from a DIRECT LENDER and usually also want to see your credit score & Proof of Funds to cover your Down Payment.
4) Last but not least, the BEST and MOST EXPERIENCED REALTORS want to know what size loan their clients can qualify for, and need specifics on sale price, down payment and any other circumstances that could affect the positive outcome of the transaction. Most Realtors think that if a buyer is not willing to take the time to get PRE-APPROVED, then they are probably not serious about buying. To make a move forward, if you are serious about making a purchase you should have started the Loan application process prior to learning the market you plan to puchase in.
Buying income properties;
1) One of the greatest advantages to buying investment property is the way you can leverage your money to get an amazing return. Let’s say you buy an investment property for $600,000 and put 25% = $150,000 down. Historically real estate has gone up in value, (over the long haul), by about 5% per year. So if your $600,000 property appreciated just 5% = $30,000, you have made a whopping 20% on your initial investment, ($30,000 divided by $150,000 initial investment = 20% return).
2) Over the long haul you should also expect to see rents go up. For example a 2 bd + 2 ba apartment in Costa Mesa rented for about $800 per month in 1998. That same apartment today would rent for approximately $1,350, or a whopping 57% increase! That not only means you are increasing your income, but you are also protecting yourself against inflation.
3) Building a retirement through buying investment property means that YOU ARE IN CONTROL of your own financial future. The value of your 401k may go up and down, your company may go out of business and there goes your pension, and who knows what will happen to Social Security since the government continues to spend more than it takes in. Getting those rent checks each month can give you some real peace of mind and keep you in control of your own destiny.
4) Somewhere around 90% of all Americans are not totally self sufficient when they reach retirement age. Buying investment properties can give you the life you want with the security of knowing you have YOUR OWN income and don’t have to count on the government, your company, or what the stock market does.
5) The industry standard when buying a 2-4 unit investment property is to put 25% down. This is the minimum down unless you are buying a single family home or condo for investment, then you can get in with 20% down, (up to a loan amount of $417,000). The down payment needs to be in your account for 60 days, (unless it is coming from your credit line).
6) In addition to the down payment and closing costs, you will also need to have some money left in reserve. The guideline is 6 months of your payment, taxes and insurance.
7) Prices have dropped a good $200,000 + across the board over the past 3-4 years, and with interest rates still at historic lows, this is a really great time to find some great CASH FLOW OPPORTUNITIES.
8) Again, you ALWAYS WANT TO BE PRE-APPROVED by a DIRECT LENDER, (BANK), so you can be in a strong position to negotiate when your Realtor finds just the right investment to meet your needs.
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Should you have any questions for Terry Lee at Bank of America or myself feel free to contact Patrick Schwier at:
Patrick Schwier
Broker/Multi-Family Investment Specialist
Web: www.schwierassociates.com
Blog: http://incomeproperties.wordpress.com/
Email: patrick@schwierassociates.com
Cell: 1.714.401.0893
Ph: 1.888.558.6487
