Resources for first time home buyers - long distance investment property edition.
May 30, 2012 8:28 AM Subscribe
Please point me to honest, helpful resources for first time home buyers. I would like to purchase a property in the US with cash and then rent it out. Can you please point me to resources that can help me learn the best way to do this while managing some of the risk?
I grew up in Florida and still have some close family there. There are many foreclosed homes in nice neighborhoods that I could afford to purchase with cash. I would like to buy one. Although I am a US citizen I do not currently live in the States.
I have done some basic internet research and found that there are such things as buyer's real estate agents that specialise in foreclosures and the unique problems associated with them. I have also found that there are management companies who will manage your rental investment property. I would like to find and purchase a house using a buyer's agent and then rent it out using a management company.
I have never purchased a property before and I am very undereducated about this process so would like to read some articles, books, advice, something that covers in detail the whole process along with common pitfalls and ways to avoid them. However, what I've been able to find so far is either (1) pretty vague or not in-depth, (2) scammy get-rich-quick sounding or (3) advice for getting your first mortgage (I do not want a mortgage).
I am in my 20s. My long term goal is to build up a portfolio of investments that will allow me to retire at some point in my 50s or 60s. I have cash and these particular properties seem very undervalued to me, so it looks like a good investment - certainly better than the 1.2% you can get in a term deposit / CD these days. I have no intention of ever living at this house. I will probably hold on to it for awhile although if I can sell it in a few years for a profit, I wouldn't be averse to doing that and then reinvesting the money elsewhere (another property or whatever investments are looking good at that time).
So, what resources - books, articles, white papers, websites - can you point me to for a good education in all of this? Topics that such a resource might address: how much should all the additional expenses cost, how to get a reputable agent, how to properly research a prospective property, what is the step-by-step process I should expect, how to get proper insurance that will cover me in case of nightmare tenants or negligent property managers, etc.
Throwaway email if needed: askmehousebuying@gmail.com
I grew up in Florida and still have some close family there. There are many foreclosed homes in nice neighborhoods that I could afford to purchase with cash. I would like to buy one. Although I am a US citizen I do not currently live in the States.
I have done some basic internet research and found that there are such things as buyer's real estate agents that specialise in foreclosures and the unique problems associated with them. I have also found that there are management companies who will manage your rental investment property. I would like to find and purchase a house using a buyer's agent and then rent it out using a management company.
I have never purchased a property before and I am very undereducated about this process so would like to read some articles, books, advice, something that covers in detail the whole process along with common pitfalls and ways to avoid them. However, what I've been able to find so far is either (1) pretty vague or not in-depth, (2) scammy get-rich-quick sounding or (3) advice for getting your first mortgage (I do not want a mortgage).
I am in my 20s. My long term goal is to build up a portfolio of investments that will allow me to retire at some point in my 50s or 60s. I have cash and these particular properties seem very undervalued to me, so it looks like a good investment - certainly better than the 1.2% you can get in a term deposit / CD these days. I have no intention of ever living at this house. I will probably hold on to it for awhile although if I can sell it in a few years for a profit, I wouldn't be averse to doing that and then reinvesting the money elsewhere (another property or whatever investments are looking good at that time).
So, what resources - books, articles, white papers, websites - can you point me to for a good education in all of this? Topics that such a resource might address: how much should all the additional expenses cost, how to get a reputable agent, how to properly research a prospective property, what is the step-by-step process I should expect, how to get proper insurance that will cover me in case of nightmare tenants or negligent property managers, etc.
Throwaway email if needed: askmehousebuying@gmail.com
I am in my 20s. My long term goal is to build up a portfolio of investments that will allow me to retire at some point in my 50s or 60s. I have cash and these particular properties seem very undervalued to me, so it looks like a good investment - certainly better than the 1.2% you can get in a term deposit / CD these days. I have no intention of ever living at this house. I will probably hold on to it for awhile although if I can sell it in a few years for a profit, I wouldn't be averse to doing that and then reinvesting the money elsewhere (another property or whatever investments are looking good at that time).
Buying and managing a rental property is more like running a business than making an investment. And running a business in a field you have no experience in and have no way of personally overseeing yourself because you are out of the country is probably a bad idea. Investing on the other hand is primarily about putting your wealth into the right asset classes, keeping your costs low, and reducing risk through strategies like diversification.
Real estate is a decent asset class, especially if you have reason to believe that the market will rebound (not a given, but not an outlandish idea either). For keeping your costs low buying and managing properties is not great though, even if you have insurance you can very easily end up having to pay for many expensive repairs on top of your fixed costs of ownership. Also your short timeline hurts you in terms of costs, since there are decent fixed costs associated with buying and selling the house that you can only amortize over the relatively short time you are planning on owning it. For diversification, having only a few individual properties in the same geographic region is not great, you are exposing yourself to a lot more risk than if you spread that investment across many properties and geographical markets. There are a few possible positives for real estate as an investment that don't apply to you, such as being able to use it as a residence and being able to easily use leverage (in the form as a mortgage) to invest more money than you actually have, which is part of the reason why people own investment properties.
Overall I would say you're probably better off just investing in REITs. They are more or less designed exactly for your situation as someone who wants to invest in the real estate market but does not want to actually manage or use the property themselves. You'll get a lot more diversification than you could with the same amount of money invested in individual properties, and your returns will be more aligned to where the overall real estate market goes rather than how well you personally can manage a particular property.
posted by burnmp3s at 9:03 AM on May 30, 2012 [1 favorite]
Buying and managing a rental property is more like running a business than making an investment. And running a business in a field you have no experience in and have no way of personally overseeing yourself because you are out of the country is probably a bad idea. Investing on the other hand is primarily about putting your wealth into the right asset classes, keeping your costs low, and reducing risk through strategies like diversification.
Real estate is a decent asset class, especially if you have reason to believe that the market will rebound (not a given, but not an outlandish idea either). For keeping your costs low buying and managing properties is not great though, even if you have insurance you can very easily end up having to pay for many expensive repairs on top of your fixed costs of ownership. Also your short timeline hurts you in terms of costs, since there are decent fixed costs associated with buying and selling the house that you can only amortize over the relatively short time you are planning on owning it. For diversification, having only a few individual properties in the same geographic region is not great, you are exposing yourself to a lot more risk than if you spread that investment across many properties and geographical markets. There are a few possible positives for real estate as an investment that don't apply to you, such as being able to use it as a residence and being able to easily use leverage (in the form as a mortgage) to invest more money than you actually have, which is part of the reason why people own investment properties.
Overall I would say you're probably better off just investing in REITs. They are more or less designed exactly for your situation as someone who wants to invest in the real estate market but does not want to actually manage or use the property themselves. You'll get a lot more diversification than you could with the same amount of money invested in individual properties, and your returns will be more aligned to where the overall real estate market goes rather than how well you personally can manage a particular property.
posted by burnmp3s at 9:03 AM on May 30, 2012 [1 favorite]
My own family in Florida have had a hard time renting out houses - the market is really saturated with people trying to do this. You're right that the properties are undervalued, but the rental demand just isn't there right now, it seems (depending where you're talking about in Florida, of course).
posted by judith at 9:16 AM on May 30, 2012
posted by judith at 9:16 AM on May 30, 2012
If you are buying property, you need to do this in person. Finding someone to give money to, who will buy you a house and rent it out. In Florida. Well my friend, that is asking to be ripped off.
Here are some problems specifically endemic to Florida:
1. Chinese Drywall. Due to the building boom in the late nineties and early 2000's, Chinese Drywall is in a ton of recently constructed homes.
2. Mold, mildew and nature reclaiming the property. Banks own tons of homes in Florida, and banks are shit landlords. The properties sit vacant, the pools become mosquito and algae breeding grounds, and the Everglades encroach on the property, reclaiming the land from which the home sprung. The electricity will not be on, so all that humidity and heat will be doing a number on the house.
3. Squatters. My friends were renters and the landlord called them one day to say he had declared bankruptcy. For two years they stayed in the home and paid no one any rent. Their house had been sold on the courthouse steps, and in that time they endured every Tom, Dick and Harry driving by to peer in their windows, kick the tires and generally bother them. Finally, they arranged with the new owners (investors) to rent the house, while the invesors find a buyer. Not everyone is on the up and up, and you may have to evict people from your house.
4. Florida is the land of flakes, scammers and crooks. I wouldn't do anything long distance in Florida IN the country, let alone outside of it.
Now buying a house is a relatively simple process:
1. Find Property to buy
2. Get financing (either from a bank, or pay cash)
3. Have house inspected to insure that it is sound and worth the money. A good inspection is $500-$1000. If you're balking at the price, you're a bad candidate for home ownership.
4. Have the house appraised by an impartial real estate appraiser to insure that the house is worth the money. This runs about $300 and the bank will insist upon it if you have a mortage, your accountant will insist up on it because you're not stupid.
5. Title Insurance. This is part of closing and it's a title search to insure that the title to the house is clean and unencumbered.
6. Closing costs are about 3% of the total cost of the house.
7. Sign your name about 200 times. You can do this remotely. In some states this is done with lawyers, others, just an office. You can shop around for your closing and title insurance to get a good deal. Most people don't though.
8. No matter how good your inspection, within the first month, something major will fail and you will be spending money on something that is very mundane and expensive.
posted by Ruthless Bunny at 9:20 AM on May 30, 2012 [2 favorites]
Here are some problems specifically endemic to Florida:
1. Chinese Drywall. Due to the building boom in the late nineties and early 2000's, Chinese Drywall is in a ton of recently constructed homes.
2. Mold, mildew and nature reclaiming the property. Banks own tons of homes in Florida, and banks are shit landlords. The properties sit vacant, the pools become mosquito and algae breeding grounds, and the Everglades encroach on the property, reclaiming the land from which the home sprung. The electricity will not be on, so all that humidity and heat will be doing a number on the house.
3. Squatters. My friends were renters and the landlord called them one day to say he had declared bankruptcy. For two years they stayed in the home and paid no one any rent. Their house had been sold on the courthouse steps, and in that time they endured every Tom, Dick and Harry driving by to peer in their windows, kick the tires and generally bother them. Finally, they arranged with the new owners (investors) to rent the house, while the invesors find a buyer. Not everyone is on the up and up, and you may have to evict people from your house.
4. Florida is the land of flakes, scammers and crooks. I wouldn't do anything long distance in Florida IN the country, let alone outside of it.
Now buying a house is a relatively simple process:
1. Find Property to buy
2. Get financing (either from a bank, or pay cash)
3. Have house inspected to insure that it is sound and worth the money. A good inspection is $500-$1000. If you're balking at the price, you're a bad candidate for home ownership.
4. Have the house appraised by an impartial real estate appraiser to insure that the house is worth the money. This runs about $300 and the bank will insist upon it if you have a mortage, your accountant will insist up on it because you're not stupid.
5. Title Insurance. This is part of closing and it's a title search to insure that the title to the house is clean and unencumbered.
6. Closing costs are about 3% of the total cost of the house.
7. Sign your name about 200 times. You can do this remotely. In some states this is done with lawyers, others, just an office. You can shop around for your closing and title insurance to get a good deal. Most people don't though.
8. No matter how good your inspection, within the first month, something major will fail and you will be spending money on something that is very mundane and expensive.
posted by Ruthless Bunny at 9:20 AM on May 30, 2012 [2 favorites]
The blog jeremy and kathleen is run by a young couple who started buying houses to rent. I don't think they talk about it too much, but she did recently do a post on landlord matters that might be interesting to you.
posted by logic vs love at 9:34 AM on May 30, 2012
posted by logic vs love at 9:34 AM on May 30, 2012
Any Realtor will gladly lend their expertise. But this could be expertise or "expertise."
Here is one little trick: in you community of interest, figure out who is the biggest, best and most respected realestate brokerage. Say that is ReMax. Then figure out who is the biggest, best and most respected Realtor. Google for Agent of the Year or something along those lines to figure out who that agent is, or just call the main brokerage line.
Call that awesome agent, tell them your story and ask for advice, information or referrals (if they can't handle your specifics housing, price or location needs.) Since real estate is about referrals, Realtors never want to see their name belittled because they referred you to a poor agent, though of course YMMV.
But really, no big and respected Realtor will turn you down because there is little easier in Real Estate then working with a motivated buyer = because two weeks to assist a home purchase is worth 3%, and four months + marketing costs to assist with a home sale is still only worth 3%.
posted by lstanley at 10:37 AM on May 30, 2012 [1 favorite]
Here is one little trick: in you community of interest, figure out who is the biggest, best and most respected realestate brokerage. Say that is ReMax. Then figure out who is the biggest, best and most respected Realtor. Google for Agent of the Year or something along those lines to figure out who that agent is, or just call the main brokerage line.
Call that awesome agent, tell them your story and ask for advice, information or referrals (if they can't handle your specifics housing, price or location needs.) Since real estate is about referrals, Realtors never want to see their name belittled because they referred you to a poor agent, though of course YMMV.
But really, no big and respected Realtor will turn you down because there is little easier in Real Estate then working with a motivated buyer = because two weeks to assist a home purchase is worth 3%, and four months + marketing costs to assist with a home sale is still only worth 3%.
posted by lstanley at 10:37 AM on May 30, 2012 [1 favorite]
This thread is closed to new comments.
I'm still working on whole process myself. I would strongly caution that buying and then renting out property when you are 1) a novice real estate investor and 2) out of the country will make this a really, really risky proposition. You will be relying on a management company to oversee the property with no ready way to supervise them. You will not be able to make personal assessments about damage, or save costs by doing work yourself. You will not be able to make personal interviews of prospective tenants. Moreover, you will not be able to participate in the local real estate seminars, meetings, etc. mentioned in the other thread.
Yes, the return is higher than bank interest, but your bank interest is guaranteed; this seems really risky in your situation.
posted by 5845(f)(1)(D) at 8:37 AM on May 30, 2012