Sometimes home buyers either want to own a home and use a portion of building as rental property, or purchase separate property for investment. For first time home buyers, this may be challenging, but possible. First time home buyers may find this too be expensive. When entering into either arrangement there are some important factors to consider:
· If purchasing property for an investment, you will be required to take out an investment loan. These loans normally have higher credit requirements, down payments, and interest rates. If you live on the property, normally you can get better interest rates.
· FHA loans are available up to four units. If buyer occupies one of the units, they usually are eligible for a 3.5% loan. If the unit has 3 or 4 units the buyer will need to have 3-months of cash reserves in order to qualify for the loan.
· Being a landlord can be complicated, especially for a first-time buyer. A landlord will probably have to deal with tenants who will destroy the property, and/or have too many pets. In addition, the landlord must understand the legal requirements for their particular area concerning tenants not paying rent, and the legal requirements for evicting tenants. This can be especially difficult if landlord does not live in the local area.
· When becoming an investor, it is wise to keep it simple by reducing the steepness of the learning curve. Might consider buying a duplex and become an owner-occupied landlord. Once you become comfortable being a landlord, make the duplex a straight rental property, and move on to more complex investment opportunities.
Finally, maintain sufficient cash reserves to cover emergencies.
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