strategies mortgage down payments
Strategies for Handling Mortgage Down Payments
August 12, 2019
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rental home investment purchases

At Primary Residential Mortgage in Fort Myers, we’re proud to serve a wide range of clients with our excellent mortgage and refinancing options. Whether you’re a first-time homebuyer just entering the market or a seasoned real estate pro flipping properties, we have mortgage purchase programs and fantastic mortgage rates available across the board.

Among those who purchase properties from an investment standpoint, one potential option here is renting out the space after purchase to turn a profit. Many real estate flippers have turned themselves into wide-scale landlords, collecting profit from several properties at once. If this is your first time attempting to enter this market, there are a few important areas to consider – here’s a primer on what to look out for.

Management Format

For starters, there’s one big question to answer right out of the gate: Do you plan to serve as the direct landlord of the property you’re purchasing to rent out, or will you be hiring a third-party property management company? Both of these are viable options depending on your situation.

If you plan to be the landlord yourself, be prepared for some significant responsibilities. You have to be on-call virtually always, helping fix issues or solve problems. If you hire a property management company, you trade some of this potential stress for a higher cost.

Expected Profits

You also want to get an idea of whether your rental property will generate profits for you, and this involves making comparisons to current rental situations. If the home in question happens to be owned by another property flipper who is renting it out, ask the owner how much they charge in rent and make your calculations from there.

If not, check other rentals in the neighborhood or in homes in the nearby area. Look for average monthly rental income, then compare this amount to the costs you’ll have to cover, including the mortgage and other potential expenses.

Rental Expenses and Risks

Speaking of other non-mortgage costs, there may be a few to consider: Areas like HVAC and plumbing, electricity and large appliances such as fridges or washing machines all likely fall under your purview, and you need emergency funds in place in case such items break down or falter.

In addition, consider the minor risks associated with renting a home out. For instance, what if you are between tenants for a month or two – will you have enough funds saved up to cover the mortgage during this time? Are you prepared to handle a variety of tenants, including some who may not be as organized as you?

Down Payment Considerations

Finally, if you are preparing to purchase a home and rent it out, you often need to be prepared for a higher down payment than normal – in the 15 to 25 percent range. You also may receive slightly higher interest rates and more restrictive guidelines, as there is slightly more risk to lenders in these kinds of situations.

For more on areas to consider if you’re thinking of purchasing a home to rent it out, or if you need information on any of our home loan rates or mortgage services, speak to the staff at Primary Residential Mortgage today.

*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.

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