Homes for Rent in Reno-Sparks and Fernley
Record low real estate prices in the Reno-Sparks and Fernley area motivate some people to think about investing in rental property.
The argument: " Buy a house, get a tenant to pay big rent that will cover the mortgage and earn a tidy profit right away"
There's a lot to know before buying, and many things to learn before becoming a landlord.
Financially, buying a rental comes with different, and higher, costs than buying a home as your personal residence.
When purchasing a primary residence, buyers can obtain a mortgage that requires a small down payment, or even no down payment.
When buying a property to rent, lenders in Nevada require investors to put at least a 20 percent down payment. Private mortgage insurance does not cover investment properties in Nevada.
Other costs to consider: Investors pay a higher interest rate on mortgages for rental homes. Numerous factors including credit score go into calculating the interest rate an individual buyer may be offered.
An investor can expect an interest rate of one-fourth to one-half percent higher than someone borrowing for a primary residence.
Homeowner's and liability insurances often cost more. Sometimes taxes are higher on rental property than on a primary residence.
First-time buyers of investment property need to sit down and have a candid financial conversation with a lender when considering buying property to rent. Buyers need to consider the "what if's" scenarios.
What if the property is vacant for a few months? Can the borrower afford to make the full monthly morgage and utility payments? What if the property is damaged? Can you afford enough liability insurance for various problems? What if you have to evict someone? What if someone sues you?
People fail to consider the bigger picture. That could be costly in the long run. Anyone considering purchasing a rental property needs an experienced Realtor to guide them to an appropriate neighborhood and to an appropriate property.
Educating yourself thoroughly is key to becoming a successful real estate investor. Recently Fannie Mae, which accounts for 40% of the $12 trillion in U.S. residential mortgage debt, loosened its loan restrictions for real estate investors and second home buyers. The new rules apply to people who own multiple residential real estate properties.
The new Fannie Mae guidelines allow investor and second home borrowers to qualify for Fannie backed financing on up to 10 properties if they meet strict underwriting and delivery requirements. Previously Fannie Mae had a "four property rule".
To get financing, the Fannie Mae guidelines state:
- Borrowers cannot have a history of bankruptcy or foreclosure within the last seven years.
- When more than four properties are financed, the borrower must have a minimum credit score of 720.
- There are reserve requirements dependent on the type of property the borrower is purchasing.
- Buyers have to have 25 percent down for a second home and 30 percent for an investment property.
For professional investors with multiple investment properties, these new Fannie Mae, changes are good news. But the restrictions on loan to value and cash reserves are tighter than in the past.
Don't be scared away, investing in rental properties can be very rewarding. Most investors of rental properties that I have dealt with pay cash for the property, eliminating several of the issues mentioned in this post. The real key to investing in rentals is an experienced property manager.
If you are thinking of investing in rentals in Reno-Sparks and Fernley, call me. I have over 5 years experience, long term tenants and recommendations from my owners.
Please see my post on "Five Signs its Time to Hire a Property Manager".