Househacking is probably one of the most underestimated strategies that can help new real estate investors build their wealth faster and in a more efficient way possible. Once properly implemented, househacking gives savvy investors the chance to speed up their business efforts in the real estate industry like no other. it also eases the way for aspiring investors to transition to real estate.

Househacking Defined

Househacking  is a real estate strategy that allows savvy investors enjoy a good return on investment through physically living in the property they use to generate passive income. Househacking provides investors a way to lower their overhead and mitigate risks at the same time.

How do you get started with househacking, then?

Commit

Househacking is a commitment of and in itself. Househacking requires a serious commitment in behalf of potential investors. It is in their best interest then to commit to this idea at the soonest time possible. Commit to this idea before considering househacking. You have to be convinced that this strategy is something you are comfortable to live with for literally a long period of time. Even the tiniest reservations are indications that you are not prepared. This means that you shouldn’t start househacking if you are not ready for the impending commitment. However, if you are, you can proceed to the next step.

Secure

Next is to secure financing. Make sure you line up financing prior to checking out properties. When you do so, you can get the precise amount you can borrow. Whether it is a traditional loan or one from a private money lender, secure financing at the soonest time possible. This allows you to know the amount of property you can afford, and refrain from considering properties not within your price range.

Study

Once you secure financing, observe due diligence and study as needed. Test the waters of the market you plan to buy in and where your cash will let you purchase. This is the time when you should be locking down your exit strategy. Would you like a duplex or do you want to try a triplex instead? Whatever it is, identify the type of property you wish to purchase and run the numbers. See to it that the numbers make sense. Keep in mind that the goal is to live down mortgage free as your tenants pay down the principal. Ensure that the property you buy into can achieve just that.

Locate

After you determined the profit margins you have to work within as well as the expected cash flow, look for a property that fits with your criteria. It doesn’t make sense to purchase a home that will not take you a step closer to your househacking goal. The cash flow must offset the mortgage enough for you to live in the property with no need for you to make any payments yourself.

Act

After you finished your homework and you are sure that the house you found meets your househacking criteria, it is time to move. Purchase the house and be ready to move in. When things go as planned, your tenants will pay your mortgage as you continue to live without paying any mortgage at all.

Getting money to make a downpayment on your investment property can be a bit challenging. The payment method that you utilize to pay all or a part of your downpayment is important to your own financial stability. It has become common recently for experienced and new investors to experiment with the alternative funding sources. Things like self-directed IRA, self-directed 401k, as well as private money lenders help more people to be property owners.

Once you finance investment property, you might doubt about when and how you can do it. Well, it’s natural. But, through knowing some things to consider when refinancing your investment property can surely make a difference in getting the results you want.

Refinancing Investment Property

When you’re considering this option, you should understand the options of going to a mortgage lender or a bank. You have passive income property that doesn’t have any guarantee that the loan won’t be repaid. With this threat in mind, banks and lenders now limit the amount of money that’s available for refinancing. Loan might be something new to you even if it has been used in the industry of real estate for years. This term revolves around the property’s current value in comparison to the requested amount of load. Lenders pay more attention to LTV rations compared to previous years. Majority of lenders have 75% or less LTV.

It means that once you request for refinance, you’ll likely get seventy-five percent of the property’s appraisal value. This number is on high end and several investors could only get twenty-five percent. Unsecured debts and personal credit scores are always the factors to get approval for investment property refinance. In today’s economy, a lender will basically refuse or limit to lend you money if the ratio of your income and debt falls below the predetermined threshold. However, it’s possible to refinance any of your investment property at lower rates to cash out equity.

Why Refinance Interest Rates are Important?

Examining your current interest rates would interest both you and the lender. You might not qualify for refinance depending on the original rate since the lender might lose money. Even if the interest rates are low, once the rates rise in the future, the bank would still honor the low refinanced rate. It might cause the lender to lose money based on the original agreement. This is why careful reviews are made of economic conditions in the future, your employment and credit and received income from the property before the final decision is made.

Refinance isn’t something that happens in an overnight process and you will be able to know the answer by morning. It might take a lender a few weeks before you’re notified about the approval. Holding keys to any investment property is exciting and one of the best things in life. Getting out the property’s equity to make repairs or invest cash in second property is a crucial decision. You may refinance any investment property you have if you fully understand how decisions are made as well as what you can stand to lose.

 

FHA loan is among the best choices of loan available right now for homebuyers looking for a low down payment and easy qualifying standards. The FHA or Federal Housing Administration is part of the Department of Housing and Urban Development of the US.

FHA is not the one that makes the loan. Instead, the loan gets funded by a lender approved by the FHA in accordance to the lending guidelines of FHA.

FHA basically protects lenders from loss in case of borrower default. Through this loan guarantee, FHA provides a form of federal assistance that allows moderate and low income homebuyers afford their dream home.

It was during the 1930s’ Great Depression when the FHA program was originally made to act as a catalyst to stimulate the economy of the nation and stabilize its housing market. From then on, millions of moderate and low income borrowers were able to refinance or purchase their houses through FHA loans.

Application for FHA Home Loan

The very first step when applying for FHA loan is to get in touch with a lender approved by FHA. FHA loan is considered as the easiest form of real estate loan where you can be qualified for since it just needs a low down payment and doesn’t require a perfect credit. The FHA loans are not only meant for single family properties. It is also possible to get a loan to refinance or purchase condominium, fourplex, triplex, or duplex provided that the borrower occupies one of the units. These loans are not meant for investors or for purchase of vacation homes.

For the process to officially start, you have to provide basic information to your loan specialist, which include the following.

• Address or addresses of the borrower for the past 2 years
• Social Security Numbers of all the borrowers
• Current Paystubs
• Employment information for the past 2 years
• Banking statements for the past 3 months
• Federal W2’s for the past 2 years
• Information about owned real estate properties if any
• Certificate of Eligibility ad DD-214 for the veterans
• Federal Tax Returns for the past two years, Business Balance Sheet for the self-employed, and Income Statement
• Pay for credit report and property appraisal  by FHA

To be qualified for an FHA loan, you have to meet the following criteria:

• Must have a valid SSN, lawful US residency, and of legal age for mortgage signing in your specific state
• Must have steady history of employment, looking for a minimum of 2-year history
• Must have minimum down payment of about 3.5% to apply to the purchase price
• Mortgage payment which include PITI requires to be below 31% of gross monthly income
• Overall monthly debt, including credit cards, mortgage, student loans, auto loans, and others cannot go beyond 45% of monthly income
• Must be a minimum of 3 years from foreclosure with a good credit
• Must be a minimum of 2 years out of bankruptcy with a good credit
• Must have 580 minimum credit score

 

A 1031 exchange basically enables you to sell a business-use or investment property for another investment or business use property of greater or equal value deferring the capital gains tax, healthcare tax, state taxes, and depreciation recapture tax.

You have to take note that in terms of 1031 exchange, some special rules apply. As with everything else in today’s life, once it sounds too good to be true, it could be. That is the reason why it is important to get assistance from professionals before you make any decision.

Below are some of the things you should know about 1031 exchanges:

• Never Touch the Proceeds from the Sale

It is essential to not have proceeds from sale touch your business or personal account at closing. But rather, see to it that you utilize an accommodator for securing funds in between selling down-leg and buying up-leg. Although the funds placed in your account is for less than sixty minutes, it could likely trigger tax consequence. So, you need to be aware of this in terms of 1031 exchanges.

• Like-Kind Property is Actually Vague

The use of like-kind term is essential to note. Based on IRS, it actually refers to the investment’s nature instead of the form. For instance, you may exchange apartment building for net leased investment or a walnut farm or vice versa. You should ensure that you talk to the consultant regarding how it could trigger depreciation recapture.

• 1031 Exchanges Have a Time Frame

Basically, you only have forty-five days to determine 3 possible properties or two hundred percent of the property’s fair market value sold at the close of the escrow of down-leg. You have 180 days to buy your exchange property after you have sold the prior investment property.

• Investment Properties Only

It is important to note that you can’t use the funds from proceeds to buy personal property. It only means that you can’t sell your own apartment building to buy a new house or use money to fund your own dream holiday vacation. If you sell any investment property, you should buy another investment property.

• Replace Your Debts and Proceeds

When buying any exchange property, you should replace cash proceeds plus debts from the property you are selling on another investment. For instance, suppose you like to sell the property a million dollar, get half a million dollar in cash proceeds, and got a loan of about $450,000. You need to use the cash proceeds and replace your loan. Once you take out some cash or get smaller loans, it’ll be considered boot and this will be a taxable event.

Once executed properly, 1031 exchanges must result to no current taxes and it’ll continue growing tax deferred. It is essential to do your own research and everyone is encouraged to speak to an accommodator on 1031 exchange, CPA or attorney before you do an exchange. For the meantime, you may consider repositioning your investment portfolio.

If you are planning to buy your first investment property, you might want to know some factors first for you to make the right and best choice.

Keep these following tips in mind when purchasing your first investment property.

• Get All Your Finances in Order

As the starting point, you should take a look at your debts and pay off as much of this as you could before you begin investing. Settle outstanding student loans, clothing accounts, and so on. After that, reevaluate your position in terms of your finances. Property is not a short term commitment and therefore, it’s advisable to look at short term future debts that would be popping up the next year. For example, it might be wise to delay buying if you’re planning to send your kid to university.

• Research Market

As with some things, investors have to be educated thoroughly about the relative market before they start investing. Take note that just because the property markets are doing good in some places, it does not mean it’s a given that this applies everything in the country. Remember that unlike investing in stock market that might only set you back some rands per share, investing in real estate will always involve serious capital.

• Know the Interest Rates

The interest rates remain fairly low. But, it should be remembered that the banks decide how much the interests they’re charging.

• Be Cautious of Fixer-Upper

Many experts warn about purchasing a fixer upper as your very first investment property. It might be tempting to go out and purchase the cheapest available property, yet such tend to be homes that need lots of work and a good deal of cash to get shipshape. Generally, renovations cost big money unless you’re skilled to carry out the work on shoestring on your own or have a family member or close friend you could call upon, you will probably spend a lot on the improvements. If the repair isn’t that bad, finding a good buy does not mean that the property is not a good consideration. Again, you should do your homework and invest in the property that will make you money.

• Keep Everything Realistic

Take note how tough things were once you first purchased your home. It is frequently the same once you purchase your first investment property. Never expect to make money from the very beginning. Instead, concentrate on searching for the best property and get a reliable and solid tenant in place. The cash will come and once it does, it might be the time to searching for another investment property.

• Search for a Property in the Best Location

Location is everything and this is true, whether you are looking for a residential property or rental properties. In a city, search for some properties that are close to the schools, restaurants, and shopping centers. In suburbs, try and look for something that is close to the shops and schools. Everybody wants places that are accessible to everything.