4 tips for finding a home to live in or rent out
With interest rates at an all-time low, we are seeing several prospective first-time home buyers entering the market.
With more homes being listed on the market to meet this demand, first-time homebuyers are inundated with articles, videos, and social media posts about how to find the perfect home. In this post, I’ll go over the criteria I used to purchase my home so that you can apply the same criteria in purchasing yours.
After moving back-in with my parents for a year, I had saved enough cash for a down payment. I began my search for a home on Zillow and Redfin. My criteria for a home were:
Great Location: I learned from reading several articles and books that “You can always change the condition of the home, but you can’t change the location.” This idea resonated with me and it was of top importance for me to find a home in a Class A neighborhood because I wanted the home to:
appreciate,
be in a safe neighborhood, and
command premium rent and cash flow
At least 2 bedrooms and 2 bathrooms: Having lived with 5 guys in a 2 bedroom, 1 bathroom home during college, I knew first-hand the savings possible by fitting more people in a small space. Ensuring I bought a home with at least 2 bedrooms and 2 bathrooms allowed me the option of finding a housemate to split the cost of the home. If I found myself needing to relocate and rent out the home, I knew that having more bedrooms and bathrooms increased the pool of applicants.
Less than $250K: At the time, I was a single man earning $80K a year, so I didn’t have unlimited funds to purchase a home. Given that my goal was to put 20% down to avoid Private Mortgage Insurance (PMI), I was pre-qualified to purchase a home up valued up to $300K. Yet, I wanted to ensure my monthly mortgage payments were less than 20% of my take home pay, so I dropped my maximum purchase price to $250K. Lowering my maximum purchase price was pivotal to making the property cash flow.
Needing light rehab: My dad and I have some experience fixing my parents’ home. We have completed projects such as building a shed in the backyard and converting a patio into a second kitchen. We were able to transfer these skills into light home renovation projects, such as removing carpet, sanding and varnishing wood floors, and installing insulation and sheet rock. My goal was to find a home that needed light rehabbing so that we could purchase at a discount and update the home ourselves.
After spending a couple months actively searching for and visiting homes with my realtor, I came across a 4 bedroom and 2 bathroom home located across the street from a local university that was listed at $200K. The home was being sold by its second owner who had lived in the property for 30 years. While it contained outdated carpet and wallpaper throughout, the previous owner had taken very good care of the home. Overall, the home hit on all the criteria I was looking for.
To recap, the four key criteria I used to purchase my home and continue to use when purchasing homes are:
Great Location. “Great” is subjective, but if you want to give yourself the most flexibility when it comes to sell or rent it out, you’ll opt for a safe neighborhood.
At least 2 bedrooms and 2 bathrooms. Even if you don’t foresee yourself living with a roommate, having at least 2 bedrooms and 2 bathrooms opens up the pool of applicants when you decide to sell the home or rent it out.
Price is within your means and you’re able to put 20% down. For some, saving 20% down is a difficult task, especially if you live in an expensive metro area. But if you are able to save 20% and avoid PMI, I highly recommend it. Choosing a reasonable purchase price and putting 20% down will help make the monthly payments more manageable and cash flow more likely.
Needing light rehab. While the turnkey, newly renovated homes are the most eye-catching, try to avoid these and realize a discount on the purchase price. Even if you have no experience doing home renovation, you will pay a lot less in contractor fees than you would in an inflated purchase price. Homes that need light rehab sometimes even have less competition, so your chances of having your offer accepted are higher.
While YouTube videos and articles may give you other advice, sticking to these four criteria will provide you peace of mind on your first home purchase. Not only do these criteria save you money at purchase, but they allow you the flexibility in case you need to sell the home or rent it out. My hope is that these four criteria help you find a great home to live and invest in.
