Home buying remains one of the most daunting but most rewarding decisions you will make in your life. While it seems a bit scary at first, having a proper education in home buying can be the difference between coming out ahead or getting stuck in “a money pit.”
While education is crucial, the decisions and preparations you make ultimately depend on what type of purchase you make. For example, if you’re buying a home to live in, you probably will be a little less practical and a little more emotional towards the purchase.
While certain aspects of the house may not make sense from a strictly financial standpoint, the spark of joy in you may supersede monetary value.
However, if you’re buying a house purely for investment, it is critical to prioritize financial matters. Getting too emotionally attached to the property may cause a rash and unwise financial decisions. If the purchase doesn’t make sense financially, walk away.
When buying an investment property, it’s essential to realize that everyone has different tastes in style. What matters to you might not necessarily matter to potential renters or buyers of your future home.
Generally speaking, it’s best to go for a broad appeal that will interest as many renters and buyers as possible. A home with curb appeal, modern bathrooms and closets, and a convenient location matter more than the actual architectural style.
The Two Types
To contrast these two property types, let’s first take a look at each.
A “primary residence” is, quite simply, the home you live in. Legally, a primary residence is one the buyer must live in it 60 days following closing. You can deduct home mortgage interest, home equity loan interest, and property taxes for tax deduction purposes. But you may NOT deduct home improvement costs.
Mortgage loan interest rates are usually lower than investment property loans.
An investment property is a property you do not live in. It’s used to generate profit through renting or appreciation. Buying an investment property makes you eligible for extra tax deductions, primarily if it is used as a rental.
By renting, you can claim expenses for repairs, improvements, management, cleaning, supplies, and insurance premiums.
Before deciding on home purchasing, it’s essential to consider a few factors.
First, consider your finances:
- How much can you afford to pay per month?
- How reliable is your income stream?
- Make sure to consider the repair, upkeep, and maintenance costs of a property.
Next, take a look at the long-term value of the home. Will the home deliver a long-term return on your investment? Will the home be marketable upon resale?
Also, have a plan in mind when buying your property. How big a property do you need? Are there some features you cannot live without? Are there particular features you want for this investment?
Location, Location, Location
Finally, make sure you take into account the location of the home. As almost any person in real estate will tell you, the area should be at the top of your mind when making a purchase decision. The beauty of a home will not make up for the fact that it’s on a highway on-ramp.
If you’re looking for a place to settle, consider the school ratings and crime rate. Look for an abundance of things to do nearby. The convenience of restaurants, shops, and workplaces are paramount. Even if you’re buying in a rural area, convenience is essential.
If you are looking at investment properties, much of the same holds. Try and make sure the house is in a good location where your investment will be secure. Look for a property in a trendy neighborhood with good upward movement, where there is an abundance of things to do for potential buyers or renters.
The Nitty Gritty
Buying an investment property requires a higher credit score than purchasing a primary residence. You’ll generally need good credit to make you eligible for loans and will lower your monthly payments. A sizable down payment of at least 20% is usually required too.
While the market will vary from place to place, a good starting base is a credit between 640 to 660. A credit of 750 or higher will help you get the best rates available.
If your credit is not suitable, you’ll want to focus on building up great credit first before buying the property.
As mentioned, loans for primary residences tend to have lower interest rates and lower down-payments than investment properties.
For those looking for Park City real estate, consider using Jensen and Company. We have many homes listed currently and offer invaluable advice about the market in Park City.
The market is hot right now. So whether you’re looking for a place to call “home sweet home” or an investment property, give one of our realtors a call to help you make the best decision possible.