Forclosed homes/Investment Properties

[Y2KSVT]

I'm looking for people with first hand experience in buying and selling foreclosed homes/Investment properties. I'm looking into doing this possibly next year and would like to know what I should look for, and what I can expect. What kind of loan do you have to take out on a home that I would not be primarily living in? What length of time will I need to own the home before turning around to sell? Are property gains taxes an issue in this case? What is an "average" turn around time for selling? Would you suggest using the equity you have in your current home to finance an investment home? Any info/suggestions would be great.

Thanks
Mark

 

[SERprise SVT]

Mark--

I do not have experience in foreclosure properties, but do have in commercial/residential rental properties. The first suggestion I would make to you is get the Carleton Sheets course ( www.carletonsheets.com ) , it really is very good. I took that course AFTER purchasing my first rental, and wish I had done it the other way around.

1. What kind of loan? There are many ways to finance investment property, from conventional mortgages (rental properties will require a higher % down payment), to using a second mortgage on your existing home, to borrowing against the equity in your existing home. With a rental, you can negotiate the % required down by the bank somewhat. Tip: Always try to close after the 15th of the month with a rental, as you'll be entitled to 1/2 of that month's rents. You'll also get next month's rents as a kicker, since most bank loans do not have the first payment due for 45-60 days after closing.

2. Length of time before selling? It's really determined by what the market is in your area, to be honest with you. Just know this: (In general) The longer you hold on to a rental property, the more you will make in the long run. With rentals, you can buy for 1 of 2 reasons. First is to make money month-to-month, and is achieved by putting down a substantial part of the purchase price in cash. Second is to make an investment for the future (10-15 years), while making very little money month-to-month in the meantime. Choose your path.

3. Property gains taxes. YES, you are subject to them any time you sell a property and make a profit. Get an accountant, first thing.

4. Average turn around time. There is none. You can hold the property for many years, pay it off early, and enjoy the monthly income from it. Then, pass it on to your kids or family. Or, use the equity in the rental to leverage buying another rental. Or sell it and cash out. The minimum you should keep a property (IMHO) would be 3-5 years, in order to make *something*. It's all dependent on the market, really.

5. Use equity in home to finance? By all means, if that suits you. The key factor in any bank loaning money on a rental property is cash flow. If the property has a history of cash flow that is greater than the payment, insurance, etc. ... then a bank will loan money easily on that property. Treat each property as its own little business, and you see the picture. Unlike residential properties, rental properties are graded by the bank on cash flow, and not really on your income/credit rating/etc as much.

Cliff Notes: Spend $300 on the Carleton Sheets course. Money well spent. I bought my first property for $414 out of pocket ($93k house), and have a contract on 34 unit apt. buildings for very little money out of pocket.

Good luck.