House hunting is one of the most thrilling parts of the property buying process. This is especially the case for first-time real estate investors who have never owned an investment property. However, don’t make the mistake of allowing emotions to influence your judgment. Be sure to balance the excitement with a lot of sober thinking. Buying property is a huge investment that you cannot gamble with.
Here are some great house hunting tips for real estate investors:
Create a Budget and Save Some Cash
In July 2021, the median sale price in the US housing market was $385,650. This represented a 19.5% year-over-year increase. Before you start house hunting, figure out how much you can afford to spend. In addition to the price of the home, you need to consider other costs like title search fees, closing costs, home inspection fees, homeowner’s insurance, realtor fees, HOA fees, and more.
Once you’ve considered all these costs and come up with a realistic budget, you need to start saving some cash. The average down payment for a home in America is about 6% of the loan value. For example, if you want to buy a property worth $200,000, you will need to raise a down payment of about $12,000. It would be advisable to begin house hunting after you have enough money saved up.
Identify Your Property Needs
What kind of property do you want? Should it be one story or two? How much square footage? How many rooms? Do you prefer any specific architectural style? These are some of the questions you need to ask even before you begin house hunting. Take note that your budget will limit the kind of features you can afford when purchasing property. Therefore, you need to be realistic when deciding what kind of home you want.
Check Your Credit
If you are thinking of buying an investment property, it is very important to check your credit reports and scores early. Lenders will review your credit reports and scores to determine whether or not you qualify for a loan. With a good credit history, you can even get a favorable interest rate on your loan.
You can get a free copy of your credit report from these credit reporting companies: TransUnion, Experian, and Equifax. Be sure to read through the credit report to identify any fraudulent activity or errors. To qualify for a loan, you will probably require a FICO credit score of 620 or more.
Related: What Is a Good Credit Score for Real Estate Investors?
Get Preapproved for a Mortgage
Do you have a healthy credit score? Good! Now you can seek to get preapproved for a loan. Mortgage preapproval involves the lender checking your financial background to assess your qualification as a borrower. After this assessment, they will tell you whether or not you can be approved for a mortgage, and how much you can borrow. Getting preapproved by a lender will help you identify any problems you might have such as a low credit score or too much debt. In addition, it will help you limit your search to houses you can afford. Finally, sellers are likely to take you more seriously when you have your financing in place.
Choose the Right Location
‘Location, location, location” is a common slogan in real estate. Indeed, choosing the right location is very important for a successful real estate business. Here are some things you need to know about a location before buying property:
- School system: Your tenants will want to live in a place that has good schools where they can send their children. The quality of the school system will determine property values in an area
- Crime rate: Neighborhoods that have a low crime rate are considered great locations, and thus have higher property values. A safer option is to buy property in a master-planned community. Visit AreaVibes to get information about crime rates in your neighborhood
- Amenities: The desirability of a location is also determined by the accessibility of important amenities. Your tenants will want to live in a place where they can easily access restaurants, malls, gyms, theaters, and museums
- Transport options: A good location should have safe and easily accessible transportation options. This includes subway, train and bus stops
- Future development: Visit the local government website to learn about any plans for new schools, public transportation, hospitals, and other civic infrastructure. Such development can significantly improve home values in the area
For reviews and stats about any neighborhood, visit StreetAdvisor and NeighborhoodScout.
Related: What Is Location in Real Estate Investing?
Find Income Properties for Sale
There are numerous strategies you could use to find investment properties for sale. This includes driving for dollars, direct mail, open houses, real estate auctions, or word-of-mouth. Alternatively, you could look for properties on real estate sites like Trulia, Realtor.com, Zillow, Redfin, and RealtyTrac.com. Many of these listings provide virtual tours which you can use to assess homes based on size, appearance, and features.
Another great resource you should try out is the Mashvisor Property Finder. The Property Finder AI uses cutting-edge algorithms to find the best-performing properties anywhere in the US housing market. You can find homes based on their performance in terms of occupancy rate, listing price, rental income, cash on cash return, and cap rate. The properties you find will match your goals in terms of market availability, return on investment, optimal rental strategy, and property type. With Property Finder, you can search for properties in up to 5 cities at once.
Note: To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Looking for off-market property? Visit the Mashvisor Property Marketplace. Here, you will find anything from auction homes and short sales, to foreclosure, bank-owned homes, and tenant-occupied rentals. You can narrow down your search using filters such as the number of bedrooms, the number of bathrooms, property type, budget, location, return on investment, and preferred rental strategy. Phone numbers and emails of homeowners are readily available on the Mashvisor Property Marketplace. Besides finding off-market properties, you can also analyze the investment potential of homes for sale. The Investment Property Calculator will help you estimate the cash on cash return, cap rate, cash flow, occupancy rate, rental income, monthly expenses, and startup costs.
Work With a Real Estate Agent
Working with a local, experienced agent is recommended especially for first-time homebuyers. A real estate agent will check the multiple listing service (MLS) for properties that fit your criteria. They will also help you determine how much to offer and negotiate with the seller on your behalf. Finally, they will assist you with all the paperwork at closing.
You can find the ideal agent by talking to family, neighbors, or friends that have bought a property recently. Alternatively, you could check ‘for sale” signs in the neighborhood or visit local real estate association websites. Preferably, your agent should be a member of the National Association of Realtors (NAR). They should also have certifications such as Senior Real Estate Specialist (SRES) or Certified Residential Specialist (CRS).
Use Real Estate Comps to Assess the Price
It is common for homeowners to inflate their prices when they initially list them for sale. You can use real estate comps to find out whether a home is reasonably priced. Ask your agent to provide a list of comparables for the property you are thinking of buying. This will show you what similar homes in the neighborhood have been sold for in recent months. Be sure to adjust your offer to match the comps.
Related: What are Real Estate Comps?
Conclusion
Looking for a house is a process that calls for lots of due diligence. With the house hunting tips listed above, you can never go wrong. You should also learn as much as you can from real estate blogs and industry publications. Don’t forget to check the news for the latest trends and happenings in the US housing market.
Sign up for Mashvisor now and get 15% off.