In a post-pension time, long-term retirement plans are not what they used to be. Investing in multi-tenant real estate is an accessible way for people to invest in their own futures. When properly researched, buying rental properties can be a great investment that offers lucrative long-term results.
From the outside, investing in a multi-tenant property can seem intimidating and out of your league, but once you do your due diligence, many people find the benefits of investing in such properties greatly outweigh their initial intimidation of the process. So, let’s talk about what you need to know when considering purchasing a rental or investment property.
Rental Property Investment Tips
Tip #1 – Getting a loan for an investment property:
In most cases, lenders will require the purchaser of a rental/multi-family property live at the property for 12 months in order to complete what is known as an owner occupancy requirement. In return, the purchaser receives a mortgage with no money offered as a down payment. What does this mean for you? It means you can purchase a rental property as an owner occupant, live at the property for a period of 12 months and then rent the property.
This also applies to multi-family properties between one and four units. A purchaser can occupy one of the units for a 12-month period to qualify as an owner occupant. After the purchaser of the multi-family property has lived in the unit for 12 months, all the units within the property can be rented out for profit. This is typically a one-time no-money down payment loan. It is important to also note that while there are mortgage programs that offer 100% financing, the FHA owner occupied programs require a 3.5% down payment.
Tip #2 – What is High Tangible Asset Value (TAV)?
As a definition, “Tangible assets are, literally speaking, assets which have a physical existence (i.e. it can be touched and seen). It includes property plant and machinery (PPE). This is further modified to include all assets where revenue generation is certain,” according to The Corporate Finance Institute (CFI).
Unlike investing in stocks, an investment in real estate is tangible. Why does this matter? Being backed by an actual tangible property helps reduce the principal-agent conflict or the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors. The Corporate Finance Institute goes on to explain that “even real estate investment trusts (REITs), which are listed real estate securities, often have regulations that mandate a minimum percentage of profits be paid out as dividends.”
Tangible asset classes usually have little positive correlation with the stock and bond markets. This means that an investment in tangible assets (real estate investment properties) could reduce your exposure to overall market risk in a way that most intangible assets cannot, making your real estate investment less risky.
Tip #3 – Realize the Potential for Stable Income Return
Perhaps the most appealing aspect to real estate investing is the significant amount of potential return on your investment accruing from rental income for many years to come. For example, “Over a 30-year period from 1977 to 2007, close to 80% of total U.S. real estate return was derived from income flows. This helps reduce volatility as investments that rely more on income return tend to be less volatile than those that rely more on capital value return,” according to The Corporate Finance Institute.
Real estate investing is a distinct asset class that is simple to understand and has the ability to truly enhance the risk and return profile of an investor’s portfolio. “On its own, real estate offers competitive risk-adjusted returns, with less principal-agent conflict and attractive income streams. It can also enhance a portfolio by lowering volatility through diversification.” (CFI)
Tip #4 – Partner with the Right Realtor & Mortgage Company for Optimal Success
Finding a successful, experienced realtor and mortgage broker for your real estate investment project is a must. These experienced professionals know what questions to ask, what information is most important to you as the purchaser and the best locations for your investment. Flying blindly will not help your cause. Put in the time to find out who will work hard on your behalf.
Choose Noonan Lombardi Realtors
Noonan Lombardi Realtors operates one of the most successful real estate teams for home sales, property management and rentals in Rhode Island, Connecticut and Massachusetts. Our team of expert realtors is working to transform the way consumers make home-related decisions and connect with professionals. Based on our wealth of experience in the real estate markets across Rhode Island, Massachusetts and Connecticut, we feel confident you will be pleasantly pleased with the real estate services we provide, as we strive to meet each client’s specific needs, every single time. Contact our team today for all your real estate needs: (401) 580-8672 and find us online at www.NoonanLombardiRealtos.com.