Whether you’re new to real estate investment or a seasoned pro with rental properties, you probably have plenty of questions. A first home purchase is an enormous step and is one of the best financial decisions you can make. There are several things you need to consider when purchasing a single-family rental (SFR).
In spite of this, the process of buying an investment property has several variations and unique considerations to consider. Don’t make costly mistakes by not being prepared before you start the process.
There are six main differences between buying an SFR and buying a typical home
1. Criteria for properties
Property investment: Look at the potential rental income, the location, and the market trends. In the end, it’s not about how the property looks or your preferences—it’s about its functionality and potential. To be an effective investment, a property does not have to meet all your personal requirements.
Property suitable for the buyer’s family: Emphasis shifts to personal preferences, lifestyle needs, and property fit for the buyer’s family. Unlike an investment property, a pool can be an asset rather than a liability. In order to find the right home, you must determine what type of home you wish to live in.
2. Analyzing the market
Identifying areas with strong rental demand, potential appreciation, and favorable economic conditions is essential for an investment property. The market of choice for investors is one that will provide reliable rental income and property appreciation over the long term.
Choosing a residence based on personal preferences is more important than taking into account market conditions. In order to buy a house, you need to take into account your job obligations, family needs, and your personal preferences. Profits in the short term are usually less important than long-term gains.
3. Requirements for lending
An investor’s property usually has stricter lending criteria, requiring a higher down payment. There is even the possibility of them taking into account a property’s income-earning potential. Several lenders lack experience dealing with investors, so their standards may be extra high as a result. Your credit score is an important part of your financial housekeeping.
Those interested in purchasing a residence for themselves may have more lenient requirements, and down payment options may be more flexible. First-time buyers can take advantage of programs that reduce down payment requirements and negotiate interest rates.
4. A description of the types and terms of loans
An investment property loan usually carries a higher interest rate and may require different qualification standards than a residential loan. It is important to note, however, that investors also have nontraditional lending options available to them.
In the case of a personal residence, residential mortgages may offer lower interest rates and a broader range of financing options. Traditional lending is used by the majority of homebuyers.
5. Techniques for negotiating
Rental property: Negotiations can revolve around potential rental income, property conditions, and terms that affect the return on investment. Investing in metrics and KPIs will allow investors to start their investment in a more advantageous position, and they will negotiate primarily based on those.
The buyer’s personal residence may be negotiated based on specific terms relevant to his or her needs, such as furniture, appliances, or other items. You will need to negotiate some maintenance and property conditions issues. In contrast, traditional buyers may prefer letting the seller handle the repairs. If there are any issues, it is best if the investor asks for credit and gets their own contractors to handle them, so that they know who did what and what the warranty is.
6. Prioritizing inspections
In-depth inspections may be conducted for investment properties, which may include exploring potential rental issues, the condition of the property, and determining whether rental income can be generated. While there will be certain deal-breakers, buy-and-hold investors aren’t looking for perfection. If you aren’t purchasing a turnkey property, you will likely have to do extensive renovations. In the case of turnkey properties, any issues will be much more noticeable.
During an inspection of a buyer’s personal residence, factors affecting his or her immediate occupancy and comfort may be prioritized. There may be some things a buyer would prefer to address later, even though many of these standards remain the same. Maintenance and repairs aren’t a priority for most investors, but they are for traditional buyers.
Conclusion
Investment properties are purchased almost exactly the same way as personal residences. Different people value properties differently, based on how they think about them. You should keep this mentality shift in mind when buying your first single-family residence.
