How to Buy Your First Rental Property

Anthony Spitaleri | Real Estate Ninja

You have heard the stories of those who don’t work and make most, if not, all of their money from investments properties but never understood how. I’ll tell you this, it doesn’t take a millionaire to make money from real estate (although it certainly helps to get the ball rolling). As a Real Estate Agent in one of the top 10 cities in the United States, I have helped countless investors reach and even surpass their income and portfolio goals through investment properties. Here’s a quick list of what you don’t need:

• You don’t need to save a ton of money for a down payment
• You don’t need to purchase in the trendiest city that every one loves today
• You don’t need to wait any longer

Before Purchasing Your First Property

The first investment property can often be the most difficult to buy. I suggest making a purchase plan which contains:

• Improving Your Credit Score
• Not making any large purchases
• Relying on purchasing with credit cards
• Paying down any debt
• Not originating any inquiries on your credit report
• Do not co-sign a loan
• Do not change bank accounts

 

Purchasing Your First Property

Keep in mind that most investment properties require 20-30% as a down payment. In the beginning of this article I spoke of not needing a ton of money up front and here is the key. The key is to purchase the property as your primary residence and live in it for up to the 1^st year. Depending on the verbiage, some mortgage lenders require that you live in your primary residence for 6 months + 1 day or up to 1 year + 1 day. At the end of this period you are free to begin turning a profit! You see, as a first-time homeowner you may qualify for special incentives such as a low down payment and better terms.

FHA – Federal Housing Authority

The National Housing Act of 1934 created the FHA. The FHA is a government agency tasked with stimulating home ownership and lowering the down payment restrictions for you, the buyer, without increasing risk to the lender. The most common type of FHA loan is the FHA 203(b). It allows you to place a down payment of as little as 3.5% with good credit (you see why credit has an influence now?). You can also include up to 6.5% of closing costs into the loan. The downside to an FHA loan other than you will have to occupy it as your primary residence is that you will have to pay a mortgage insurance premium. This is due to you not putting down the usual 20% as a down payment.

There are also additional types of FHA loans available such as: financial help for seniors and an energy efficient mortgage. For more information, please visit their website at: https://portal.hud.gov/hudportal/HUD?src=/buying/loans

 

Criteria and Research

Before you buy your rental property, I would select a few areas to compare each to. Ensure that each neighborhood meets your criteria whether it is close to highways, work, supermarkets, parks and so forth. If you need to sacrifice a better neighborhood for an extra 10-minute drive to work each way, it may be worth. Remember, it is only short term. Depending on what you need space wise, I suggest sticking with a property that is a 2 or 3 bedroom with 1 or 2 bathrooms. Keep your budget in mind and select a few locations that may work for you.

Next you will need to compare the average rental rates, purchase prices, and rental occupancy percentage if possible. You don’t need perfection but you are looking for a place that offers a low purchase price, higher rental rate and high occupancy percentage. It’s worth noting that if you are looking for a property inside of a gated community, there may be a monthly HOA (Home Owners Association) fee. The HOA fee will reduce the amount of money you will earn each month and annually. The HOA usually provides some type of common area maintenance like lawn mowing, security or gates that require a key or card as well as a pool and fitness center.

When deciding between properties, choose the property that is as close to move-in condition as possible. This house would need minor touch up like paint, trimming, caulking work and maybe a small appliance such as a microwave. Do not go into this by using the money you saved from your low down payment and spending $20k on a renovation before renting this out. This is not the time to do that right now. The benefit to living in this residence prior to renting it out is that you can spend a bit of time fixing small repair items over the length of time. And if something should break or clog, you can repair it before renting it out. When financing, the better the condition the easier it is for the loan approval.

 

Furthermore, if you are financing your purchase, you will need to be pre-qualified with a lender before the seller will review your offer. The pre-approval process will give you the amount that the lender is actually willing to finance based on your credit and income to debt ratio. You also do not need to use the full amount given. The lower the purchase price, the lower your down payment.

 

Already Own Property?

If you currently own your any property and have a bit of equity, you could choose to refinance. When you refinance, you can use that money to make a down payment on another property or improve the current property prior to renting it out. Another way to leverage your current property is to sell. If the market has done well and you have had your place a few years, consider selling. You can use the proceeds from your sale to upgrade to a slightly bigger place. If it is enough money, you could look else where and possibly purchase a 2, 3 or 4 family home.

Bonus Tip! If you happen to sell your primary residence you may be eligible to exclude tax on up to $250k from the gain of the sale. This amount only applies to a single tax filer. For married couples, you may exclude up to $500k.

 

Building Your Real Estate Portfolio

If you are not eligible for an FHA loan and are financing, your next property will most likely require the 20-30% down. Use the equity in your current portfolio to leverage the purchase for another. You can also save the rental income and use that towards your next rental property purchase. Look for something the same size or slightly larger in a good neighborhood because we both know – it’s all about location. Location also plays a big factor in the selling price so look for something that is a good location but is easily accessible. The lower the purchase price, the lower your down payment. And with each new investment property your cash flow increases.

 

Keeping Maintenance and Costs in Mind

It is common for those who have just begun to build their rental portfolio to manage their properties. This is called direct owner management. It works but may add stress to you since you are tied to the property personally and financially. The great rewards from owning an investment property come from the amount collected as passive income each month. This will allow you to travel and manage on your own time. If you are the handy type and have a great tenant, you shouldn’t have much to worry about. And if something does break, you should be able to take care of it quickly and efficiently. I do highly suggest that you have someone in mind for the following categories if you wish to have a team to work with you in the event that an issue arises:

• HVAC which stands for Heating, Venting and Air Conditioning
• Plumbing
• Electrical
• General Contractor and or
• Handyman

 

What questions or comments do you have about purchasing your first rental property? Email me by clicking here.

Why is It Important to Hire a Real Estate Attorney?

A great post from the Bianchi Fasani & Fantacci Law Firm on the importance of hiring a Real Estate Attorney to buy and sell your property.

By BFF Legal,

Buying a home will probably be the largest and most significant purchase you will make in your life. It also involves the law of real property, which is

unique and raises special issues of practice, and problems not present in other transactions.

In the typical home purchase,

• the seller enters into a brokerage contract with a real estate agent, usually in writing. When the broker finds a potential buyer, negotiations are conducted through the broker, who most often acts as an intermediary.
• Once an informal agreement is reached, buyer and seller enter into a FORMAL and BINDING written contract for the sale, the purchase agreement.
• The buyer then obtains a commitment for financing. Title is searched to satisfy the lender and the buyer.
• Finally, the property is transferred from the seller to the buyer, and the seller receives the purchase price bargained for in the contract.

This seems simple, but without a lawyer, the consequences may be disastrous. A lawyer can help you avoid some common problems with a home purchase or sale.

THE BROKERAGE AGREEMENT

The seller should have the advice and guidance of an attorney with respect to a brokerage agreement. Even if the agreement is a standard form, its terms sho

uld be explained to the seller and revised, if necessary. An attorney should also determine if the agreement was properly signed. For example, a seller may sign a brokerage agreement that does not deal with a number of legal problems. Realtors often use standard forms, expecting that they will cover all circumstances. In reality, the seller may become liable to pay a brokerage commission even if a sale does not occur, or to pay more than one brokerage commission. If the agreement allows the seller the right to negotiate on his or her own behalf, for example, you may avoid this problem; a lawyer may help you identity whether or not you have such right or simply add in the brokerage agreement a clause that gives you such right.

THE NEGOTIATION

A lawyer is not needed during the course of negotiations, as those are conducted through the broker. However, the buyer and seller each may have to consult with a lawyer to answer important questions, such as the tax consequences of the transaction. To a seller, the tax consequences may be of critical importance. For example, the income tax consequences of a sale, particularly if the seller makes a large profit, may be considerable. An attorney can advise whether the seller can take advantage of tax provisions allowing for exclusion of capital gains in certain circumstances.

THE PURCHASE AGREEMENT

The purchase agreement is the single most important document in the transaction. Although standard printed forms are useful, a lawyer is CRUCIAL in explaining the form and making changes and additions to reflect the buyer’s and the seller’s desires. There are many issues that may need to be addressed in the purchase agreement; below are some common examples:

• If the property has been altered or there has been an addition to the property, was it done lawfully?
• Is the seller selling the property AS IS? What happens if a buyer has an engineer or architect inspect the property and termites, asbestos, radon, or lead-based paint is found?
• What are the legal consequences if the closing does not take place, and what happens to the down payment?
• If the buyer is planning on financing a substantial portion of the purchase price, what happens if he does not obtain a mortgage loan?

Again, it is important to remember that printed contract forms are generally inadequate to incorporate the real understanding of the buyer and seller without significant changes.

TITLE EXAMINATION

After the purchase agreement is signed, it is necessary to establish the state of the seller’s title to the property to the buyer’s – and the finance institution’s – satisfaction. Generally, a title search is ordered from an abstract or title insurance company. An attorney can help review the title search and explain the title exceptions as to what is not insured, and determine whether the legal description is correct and whether there are problems with adjoining owners or prior owners. He or she can also explain the effect of easements and agreements or restrictions imposed by a prior owner, and whether there are any legal restrictions which will impair your ability to sell the property. The title search does not tell the buyer or seller anything about existing and prospective zoning. A lawyer can explain whether zoning prohibits a two-family home, or whether planned improvements violate zoning ordinances.

The closing is the most important event in the purchase and sale transaction. The deed and other closing papers must be prepared. Title passes from seller to buyer, who pays the balance of the purchase price. Frequently, this balance is paid in part from the proceeds of a mortgage loan. A closing statement should be prepared prior to the closing indicating the debits and credits to the buyer and seller. An attorney is helpful in explaining the nature, amount, and fairness of closing costs. The deed and mortgage instruments are signed, and an attorney can be assure that these documents are appropriately executed and explained to the various parties.

The closing process can be confusing and complex to the buyer and seller. Those present at the closing often include the buyer and seller, their respective attorneys, the title closer (representative of the title company), an attorney for any lending institution, and the real estate broker. There may also be last minute disputes about delivering possession and personal property or the adjustment of various costs, such as fuel and taxes. If you are the only person there without a lawyer, your rights may be at risk.

Perhaps the most important reason to be represented by an attorney is conflicting interests of the parties. Throughout the process, the buyer’s and seller’s interests can be at odds with each other, and even with those of professionals involved in the sale. The broker generally serves the seller, and the lender is obtained by the buyer. Both want to see the deal go through, since that is how they will get paid. Neither can provide legal counsel. The respective lawyers for the buyer and seller will serve only their own clients’ best interests. Seeking the advice of a lawyer is a very good idea AS SOON AS YOU DECIDE to sell or to buy a home until the actual closing.

If you are seeking legal advice about this article or any have any legal questions, please contact the team at BFF Legal. Send them an email by clicking here or you contact them via the information below.

Bianchi Fasani & Fantacci Law, P.A. | p. 786.456.4759 | e.info@bfflegal.com | www.bfflegal.com | 1000 5th Street Suite 229, Miami Beach, FL 33139

This blog and website are for informational purposes only and do not constitute legal advice.  No attorney-client relationship is formed even if you post a comment or question.  If you wish to receive legal advice, please feel free to contact me directly so that we may discuss your legal matter in greater detail. 

What’s Happening in Miami.

FROST FINALLY

The Phillip and Patricia Frost Museum of Science Center is finally ready for its big debut. Festivities start Monday, with the Miami Downtown Development Authority hosting a private reception on May 9, from 5-10 p.m. Though the city has claimed a science institution since 1950, the new venue introduces state-of-the-art exhibits including the tri-level Gulf Stream Aquarium whose natural light and open-air top mimic natural marine habitats for an immersive experience. Wind down to its bottom for a mesmerizing view through a 31-foot oculus holding in 500,000 gallons of seawater, as hammerhead sharks and devil rays circle above. The Frost Planetarium 3D dome’s 16 million color 8K visual system is one of only 13 worldwide. Besides projecting astronomy programs, signature laser shows continue with classic rock and Top 40 hits.

1101 Biscayne Boulevard; 305.434.9600; frostscience.org

BENTLEY OF BIKES

Whether All Aboard Florida’s pending Brightline express train, trolleys or cycling, Miamians are embracing other modes of transportation. Bike shops for serious gearheads have been sprouting up all over town, and Wynwood boasts a luxury dealer as of today. Inspired by the neighborhood’s minimal art galleries, the Superior Bike Shop displays bicycles as works of art. The concept specializes in premier, hand-assembled models from European brands such as Fabike, 8bar and Schindelhauer. Rare in the U.S., these exclusive bikes are known for outstanding quality and performance. Their lightweight design in materials like carbon fiber and titanium is intended for urban use. They also incorporate the latest technology: Gates Carbon Drive System’s belt replaces chains; Shimano cranksets for better shifting, and Rohloff Speedhubs with sealed gearboxes. Most retail from $2,000 to $7,000.

2105 NW Second Avenue; 305.912.7790; thesuperiorbike.shop

COFFEE KING

After wooing caffeine addicts with his famous ice coffee at Alchemist café in Fort Lauderdale’s Wilton Manors, Matias Jurgeit takes his recipe to his next venture. The Argentine opened the Revenant Coffee House & Eatery a 10-minute drive east near US-1. The purist roasts and grinds his coffee onsite, which is served within three days when it’s at its prime flavor. Though several brewing methods are trendy, he strongly believes in using a syphon. Approaching coffee recipes like a mixologist, some of his signatures are the Eternal Revenant, hot Turkish-style coffee blended with grass-fed butter and organic coconut oil, and the Spirit of the Revenant, a Turkish-style cold brew shaken with brown sugar, whole milk and sweetened condensed milk. Even espresso, dubbed the Expression, is infused with rosemary.

2301 NE 26^th Street; 954.947.7509; therevenantcoffee.com

BRIT BOUQUET

Penhaligon’s, a British fragrance house favored by the Royal Family, will open its first Florida boutique in Aventura in May. Established in London in the late 19^th century, it holds two Royal Warrants for HRH The Duke of Edinburgh and HRH The Prince of Wales. Both are displayed in the new intimate space decorated with stones sourced from Winston Churchill’s home, English oak cabinetry and a solid brass table resembling the Olympic torch and cauldron from the 2012 games in London. It’s the perfect setting to shop for a new scent from Portraits, a wickedly entertaining collection whose eau de parfums for men and women are named after fictitious characters in a British drama; the Tragedy of Lord George smells of brandy and shaving cream, and a stag’s head crowns its beautiful bottle (pictured).

19501 Biscayne Boulevard; 888.450.7578; penhaligons.com

Bringing the Sunsets.

Bringing the sunsets. This “07” line residence offers ever changing sunsets, high ceilings and space to entertain. This unit is a 1 bedroom + den and 1 bathroom. Features include:

– Stainless steel applainces
– Tile flooring
– Washer and dryer in unit
– Open kitchen
– 1 parking space
– Valet availableAsking $2250 which is on par with The Bond 1 bedroom market. Questions on this or another residence at The Bond? Contact us for all the details or email us about The Bond in Brickell by clicking here. Cheers!

SLS “03 Line” For Lease

Our featured lease of the week at the SLS Brickell is this wonderful “03 line”. The interior is 995 sq. ft. (92.44 sq. m.) with a terrace of 164 sq. ft. (15.24 sq. m.).

This residence features:
– 1 bedroom + den & 2 bathrooms
– Lovely city and bay views
– 2 walk-in closets
– Open kitchen
– European cabinetry and quartz countertops
– Asking $2800 per month

For more information, please click here.

SLS Brickell Penthouse

The most desired line in the SLS Brickell is once more available. This Penthouse sits atop Brickell and boasts 2,006 sq. ft. (242.93 sq. m.) of interior space and 582 sq. ft. (54.07 sq. m.) of terrace.

More reasons to love:
– 3 bedrooms + den & 3.5 bathrooms
– Corner residence
– Incredible vistas of Miami and Biscayne Bay
– Wrap around terrace
– Split floor plan
– Master bedroom has 2 spacious walk-in closets
– Half bathroom for guests and separate utility room

For additional details and showings, please contact us here or call 954.235.5783

The Bond in Brickell

Take a look at our “01” line residence. This light filled, corner unit is a 2 bedroom and 2 bathroom with 1,218 square feet of interior space asking $685k. What we love about this unit is:

– Southwest corner with lots of natural light.
– Floor-to-ceiling glass
– Expansive terrace with space for outdoor furnishings
– Plenty of closet space
– Dual sinks in the master bedroom
– 2nd bathroom may be used by guests without entering the 2nd bedroom
– City and bay views with surreal Miami sunsets

Contact us by clicking here or give us a call at 954.235.5783.

The Brickell Report

Did you know that as of today, there are 2,138 units available? This equates to roughly 12.3% of the Brickell condo inventory. An increase of 13.3% over January 2016. Sales are also down 38.8% from 67 in January 2016 to 41 in January 2017.

For the full report, click below!

the-brickell-report

The Scoop: WKND of February 9th

TRESS TLC

Drybar founder Alli Webb returns to her old stomping ground, South Beach, tomorrow to celebrate her hair blowout chain’s latest location in Hyatt Centric. Watch chick flicks and smell the yellow roses, the salons’ signature fresh-cut flowers, in custom chairs made in Italy. The variety of styles includes the sleek Manhattan and beachy Mai Tai. A temporary store for LBP’s beauty brands popped up in the Miami Design District for a couple months. The initials stand for Luxury Brand Partners, a Miami firm that owns hair, nail and makeup lines developed by stylists and other industry insiders. A few are Oribe, IGK, whose Sunday Funday Texture Foam and Rich Kid coconut oil hair gel are geared toward millennials, and Smith & Cult nail polishes by the founder of Hard Candy.

211 16th Street; 305.704.6036; thedrybar.com. 3930 NE Second Street; 305.676.2513; luxurybrandpartners.com

 

WARHOL ON WHEELS

The Andy Warhol Museum and Cadillac are taking a road trip. Their collaborative exhibit “Letters to Andy Warhol” has already traveled to New York, Los Angeles and Miami, where it’s on view daily through February 12 in the Design District. Centered on Warhol’s personal correspondence to and from the likes of Yves Saint Laurent and Mick Jagger, it offers a rare, intimate glimpse into an artist whose stone-faced expression mirrored a blank canvas. Contemporary artists, musicians and designers created new works inspired by his letters— author and Vanity Fair contributor Derek Blasberg’s Polaroid portraits, and fashion designer Brian Atwood and writer J.J. Martin’s gargantuan children’s book. Warhol, a brand worshipper who transformed a Brillo box into high art, often incorporated Cadillacs into his works, and some are also on display.

140 NE 39th Street, Third Floor.

 

MEXI-FAN!

Given the amount of taquerias opening here, Miami may as well be Mexico. One can barely walk a block without coming across an addition. The Baja-inspired Lolo’s Surf Cantina at Marriott Stanton South Beach overlooks sand dunes. Richard Ampudia, the Mexico City chef behind Café Habana and La Esquina in New York, imports his magic formula South of Fifth. Tocaya Organica, a Los Angeles-based fast-casual eatery specializing in natural, sustainable ingredients, launched its first location outside California on Lincoln Road. The taco menu features chef’s tips for your choice of protein and cheese, such as chicken tinga and manchego for Cali Green. Tacology, Cantina La Veinte’s mercado-style offshoot in Brickell City Centre, makes tacos like ribeye and chicharron, and other tasty bites from rock shrimp tostadas to harvest veggies.

161 Ocean Drive; 305.735.6973; loloscantina.com. 920 Lincoln Road; 305.909.0799; tocayaorganica.com. 701 South Miami Avenue; 786.347.5368; tacology.us

 

TWO FOR TOD’S

For its second store in Miami, Tod’s commissioned an installation by local artist Cristina Lei Rodriguez. It’s just the start of the Italian luxury brand’s new cultural initiative here. The 2,400-square-foot location features mobile walls that double as a 60-foot projection screen to exhibit curated art videos. Walls are also covered in the house’s signature Vacchetta leather. Other décor elements are gray marble and a mirror runway. Shop men’s and women’s ready to wear and leather accessories, including limited-edition Gommino driving shoes in fun colors and Double T crossbody bags in exotic skins. But hurry if you want to score pieces from London tattoo artist Saira Hunjan’s small capsule collection for spring. Her ink designs appear on a Gommino driving shoe, biker jacket and Double T messenger bag, pictured.

143 NE 39th Street; 305.576.8132; tods.com

 

SLS Brickell For Rent: 1br + Den

Available for lease beginning April 2017. This 1 bedroom + den and 1.5 bathrooms over looks Miami from the 40th floor of the SLS Brickell. Water, cable, internet and 1 parking space included. Live at the hottest new construction building in Brickell while this deal lasts. Asking $2200 per month. Contact us here for additional information and other availability.