Over the last years, the real estate market has suffered significant changes. It no longer offers the security of a positive financial result. Now, investing in residential real estate is a science, one that requires extensive knowledge of the market’s evolution, influential factors and risks. Only those who dedicate their time to researching the market and available properties can still be sure about gaining from their investment. Homes prices interest rates are lower so if you have the necessary tools and information for completing a successful purchase of a residential real estate then odds are that you will profit from this investment decision.
Find out what residential property you actually afford to buy.
The first thing one should do before starting the process of finding a house is to go through a very extensive and inclusive research phase. Also, a buyer should never purchase a residential real estate that he can’t afford as this may turn out to be a disastrous decision. This is why it is recommended to perform a detailed evaluation of his expenses and income. Before choosing a property you should know exactly what the mortgage value you afford to pay is.
Determine if you can loan the necessary money
Before getting too excited about buying a house you should discuss with a residential lender and find out if you qualify for the necessary loan. There is no point in starting the investment process if you can’t barrow the much needed funds.
Find out what the monthly mortgage payment is
Usually, a monthly mortgage payment can’t exceed certain percent of your monthly gross income. Please note that the gross income represents the monthly income prior to any paycheck deductions or taxes.
What is the total debt ratio?
Another thing you must know before going through with a residential real estate investment is to calculate your total debt ratio. This is calculated as a ratio between your total debt payments and your gross income, and it shouldn’t exceed 36%.
Don’t forget about the interest rates in the monthly mortgage payments
The lower the interest rate of a loan is, the lower the overall monthly mortgage payment will be. This means that if the interest rate of the loan is low then the buyer may afford a higher priced residential property.
Estimate your monthly costs
Any residential lender must consider a couple of costs that even though do not affect the purchase price; they have an important impact on the homeowner’s bank balance. These costs include the insurance premiums, the monthly maintenance costs and other taxes.
Considering the buyer’s lifestyle
The purchase of a house means thinking about the future. Anyone who decides to buy a residential property needs to understand that this investment may represent a significant setback. You should really consider if your lifestyle allows you to take such an important step as you don’t want to find yourself in the situation of having to sell the house after a couple of years.
Before making such a long term investment you should consider numerous factors. Some of the most important things you need to think about are the preferred location, the size of your family, your career expectations, possible income downsizing and climate preferences. Also, before buying the residential property you should consider how you will be using the house.
The size of the house
Of course, when you are buying a house you need to consider the size of your family. If you are married with four children then there is no point in searching for a two bedrooms flat. Just as buying a property that is too large for your needs means a financial drain.
The most common types of residences are:
- Single-family homes
These are free-standing buildings that don’t share walls with other residential properties.
These are residential complexes that include two different homes with common walls and only one legal title.
These are commonly known as condos and represent apartment properties located within the same building or complex. The units are owned by individuals and the common spaces of the property are jointly owned.
- Housing co-operatives
These are a group of homes such as one or more apartment buildings that are owned by a legal entity where co-op residents own shares. Usually every shareholder has its own lease agreement with the co-op and there is also a set of rules that offer tenure for its residents.
Location is essential
Always when you are looking for a new home you should consider the location. There are several crucial aspects that you need to think about before choosing your dream house. For instance, the residential property shouldn’t be too far from your work otherwise you will be spending most of your day on the road. You should also find out what are the important details about the neighborhood like the shopping centers, grocery store, schools and hospitals nearby. Neighbors, air quality, costs of living, local tax rates and utility rates are also other crucial things you need to consider.
Some type of jobs like local government employee or police officer mean that you will work in the same place for a very long period of time while if you are working as a military office means that you will be relocated quite often. There are careers that are more flexible and portable than others like auto mechanics, writer or IT technicians while others like a manufacturing plant worker are very difficult to relocate.
Don’t ignore the climate
When you are moving from a country to another you should also consider the climate. For instance, the weather from Europe is very different than the one in Thailand or Africa. When you have a family it is essential to think about the consequences that weather will have on your life style and health.
The conditions of the residential real estate property
Before paying for a new house you should carefully check the condition of the home that you want to purchase. Are there any termites? Is the roof leaking? Are there any problems with the electrical system? All these problems imply huge costs that will add up to the price you have paid for the house. The best solution for this problem is to hire a professional inspector who will run a complete review of the property and will tell you the additional costs it implies.
You should also have a talk with the seller of the real estate agent before buying the house. By making a list with the most important 10 questions you will know exactly what to ask. Public records should also be checked for determining the legal ownership of the property, the taxes owed, the loans on the property and the claims against the property by debtors. Any such issues need to be discussed with the seller prior to purchasing the house.
Investing in a residential real estate
When buying a property for investment you need to consider a few things. Most of the things mentioned above become irrelevant if the house is purchased for investment purposes and not for living in it. In such case, the actual concerns are cash-flow related. For instance, the investor should find out what is the rent price that is able to produce a reasonable profit and cover the costs. What are the odds for the property’s value to decrease or increase? Are vacancies a rare or a common thing?
Also, rental properties located in lower income areas mean more repair works, the tenants usually stay for short period of times, are subject to vandalism and are more difficult to resell.
Financing residential real estate
There are numerous different types of residential property mortgages, but the most common ones are the fixed rate mortgages and adjustable rate mortgages
Prior to closing on a home, in the case of the fixed-rate mortgages the interest rate is set and for the term of the loan the rate does not change. The majority of banks will allow you to decide on a favorable interest rate with a couple of months before signing the loan contract. When interest rates have the tendency to rise, you should lock the rate as soon as possible. Of course, there is a fee applied for this option.
Another thing you must know is that an adjustable rate mortgage implies a lower initial interest rate as compared to a fixed rate mortgage, but the downside is that its percentage usually fluctuates during the term of the loan. Depending on the rise of the prime lending rate, the bank can raise the rate. Normally, there is an adjustment period that is essential for determining the frequency of the rate change. The adjustable rate mortgage has an interest rate cap that features a maximum value. The loaner has the free option of choosing an adjustable rate initially and changing to a fixed mortgage afterwards.
One of the best ways of finding a new house is the Internet. The online market is full of ads from real estate agencies or landlords who are looking to sell a residential property. You can narrow down the results by selecting filtering criteria like the location, size, the type of property and price.
Buy residential real estate with confidence
Before you close a residential real estate purchase, there are some very important details that you need to consider and these usually are- the nature of the bids in auction-style ads, the price and insurance. This is why we advise you to read with great attention all the item listings and to ask the seller all the questions you have about the property. Before closing the deal, you should always run a detailed background check on the seller and the house.
Know everything about the house you are buying
Read the description of the property very well and ask the seller about all the concerns you have regarding the house. In some countries or states, the seller may have the obligation of providing a specific disclosure statement. Find out what are the seller’s terms, what forms of payments he accepts, what are the requirements and guarantees he offers. Find out what are the costs involved with signing the contract that should be paid by you.
Below there is a list of very important questions you should ask yourself.
About the price:
Am I bidding on a down payment or on the full price of the residential property?
About the title:
How clear is the title? Is it free of easements, liens or other responsibilities? If the title isn’t clear then what are the responsibilities related to this property?
About the insurance:
Is it possible to get title insurance at my own expense?
About the CCRs
Are there any codes, covenants or restrictions on this residential property?
About the Deed
What is the type of deed?
Know your seller
In order to feel positive and secure about buying a residential real estate property you should research your seller. The Internet offers countless possibilities for this. Run a quick search on Google by phone number, email address, by the name and location of the property and you will see the other websites where this offer has been placed or if the seller has other ads for other properties. Usually, the pages that host these types of real estate offers use a seller rating system which allows you to see if other buyers were happy with the services provided, and obviously is the seller is trustworthy.
Research is crucial
Buying residential real estate isn’t an exception when it comes to running you researches. As with all major decisions, you need to know as much as possible about the property you are considering buying and also about the seller. One of the best solutions for knowing everything and getting the best advice possible is to hire an experienced real estate broker that will help you negotiate, get full information on the transaction and to close the deal. Depending on your investment goals and personal circumstances, you may need to use a tax advisor or an attorney.
Never pay a seller before you sign the contract. The payment must be done when you both sign the agreement and close the deal. Usually the contract also mentions the form of payment used for purchasing the real estate property. As buying a home means a large amount of money, normall these types of transactions are completed through banks- the buyer wires the money from his account into the account of the seller. Rarely, a residential real estate purchase is completed with cash.
Buying residential real estate is a very important investment decision and it implies numerous things that need to be considered. The type of household, its size, the location, the neighbors, its tax situation, the condition of the property and the price are just a few of the essential details that you must analyze before completing the transaction.