Ask Our Broker With Peter G. Miller
By Peter G. Miller
CTW Features
Question: We have been saving steadily for several years and now want to buy investment real estate. What is the first property an investor should buy?
Answer:
The simplest and quickest way to become involved in real estate is to purchase a single-family prime residence. At first this may not seem like an “income” property but for many investors this is how they start.
You will be able to get owner occupant mortgage financing – loans with little down and liberal qualification standards. Good options include FHA-backed mortgages which need 3.5 percent up front in most cases, VA loans with zero down and conventional loans that require 3 percent to 5 percent down.
One of the great curiosities regarding a “single-family” home is that the definition of such a property for mortgage lending purposes is not limited to one unit. With many loan programs buyers are able to purchase a property with one to four units under the condition that they physically occupy one unit as a prime residence. In this situation it becomes possible to get residential mortgage financing for a property that simultaneously can produce rental income to offset ownership costs.
In addition, a property with more than one unit creates the opportunity to treat the unit where you live as residential real estate for tax purposes and the other unit or units as investment property. This means you will be able to write off repairs and other expenses as well as depreciation for the investment portion of the property. For details and specifics be sure to speak with a tax professional.
Today if you sell a prime residence you can shelter substantial profits.
Of course, there are certain requirements to get the capital gains write-off.
Be sure to speak with a tax professional for details, especially since the tax reform measure was enacted.
Once you have your first home you have shelter and if things go well – if home prices rise – you will begin to accumulate equity. According to the National Association of Realtors (NAR), “for many middle-class families, buying a home is the single largest investment they’ll ever make, and in fact, the average net worth of a homeowner is 45 times that of a renter.”
It’s important to point out that real estate is a commodity. Home values do not always go up. Just as with stocks and bonds, past performance cannot guarantee future results.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage,” (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.
