It's no secret that the Asheville, NC rental market is an excellent way to earn some passive income, but how can you buy a second home if you don't have $200,000 in cash lying around?
There has been a lot of attention recently around cryptocurrency and the ever-changing stock market. Yet, even in 2018, there is nothing better to invest in than a tangible asset like houses or land. Because there is a finite amount available, and a place to live is essential to basic survival, investing in real estate will always be a strong part of a well diversified portfolio.
What makes real estate more difficult to be a part of than other investments is the amount you need to pay in order to play. Thankfully, there are currently some excellent finance programs for those of us looking to take advantage of the passive income that comes with a rental property, as well as the long term equity built over time. Here's what you should know:
1. 20% Down Payment
This may no longer be a standard for a buyer's primary residence, yet it continues to stay strong for rental properties across the board with government regulated loans. So, before you consider anything else, please know that you can expect to pay 20% of the price of the home out-of-pocket at the closing table.
2. 45% Debt-to-Income Ratio**
Depending on the bank you choose to work with and their appetite for risk, your debt-to-income is going to max out somewhere around 45% for your second house. So, you won't likely need to own your primary home otright but you may need to payoff your car before you qualify.
3. 75% Rent Credit for up to 5 Homes
Here's where it gets really exciting. Once you have rented out your first house, you can actually pull out up to 5 government regulated loans in this way giving you the opportunity to finance 5 Rentals at one time. This means 5x the passive income and 5x the equity at the end of the loan. That should be enough to pay your primary mortgage payment and give you something to retire on. The amount you get for your rent is very important not only for your income stream, but also for your next rentals. In order for the bank to consider it as positive cash flow, you must have a mortgage payment no more than 75% of the rental amount. So, if your payment is $750, the home should rent for at least $1000 unless you want that to interfere with your debt-to-income ratio on the next purchase.
If you are interested in investing in a rental property, or have questions regarding this, give us a call at (828) 707-5642.
**Please note that the numbers and figures in this article were generously provided by one of our favorite local lenders, Jeff Land, Mortgage Loan Originator at TD Bank here in Asheville. https://jland-tdbanklo.mortgagewebcenter.com/