May 20, 2016 at 4:30 pm EDT | by Valerie Blake
Investing in your future
vacation home, beach house, gay news, Washington Blade

Want to retire at the beach? Consider buying a rental property now and letting others pay off your mortgage.

I didn’t start out wanting to be a landlord. In fact, my real estate investment portfolio began with a house in Detroit that I purchased in 1979 and was unable to sell during the ensuing 20 years because of a depressed market.

Since then, I have owned condominiums, houses, apartment complexes and land. I have flipped and flopped, learned and earned and morphed into a combination of Tim the Tool Man and Julia Sugarbaker.

In the early to mid-2000s, when D.C. housing prices were rising as much as 5 percent per month, the focus on a home as personal sanctuary and place of self-expression changed to a new one: a home as a way to make a quick buck.

Buyers were more enthusiastic about how quickly they could build equity than the home’s qualities and functionality. Investors sought out homes to renovate and flip quickly (and at times not particularly well, as many people found out too late).

Now when a buyer begins the search for his first home, while the subject of its value as an investment may come up and the desire for the ubiquitous English basement rental unit is still strong, it’s no longer the overriding theme of the discussion. Still, once you’ve been bitten by the homeowner bug, it may be wise to consider what impact other investments in real estate may have on your overall financial plan.

Consider the parents who purchased a small condo for their son to live in while attending Georgetown law school. Several years later their daughter resided in it while attending medical school there as well. At the conclusion of their education, the parents sold the property and used the equity to pay off years of student loans, allowing their offspring to begin prominent careers debt-free.

Another example is the couple that bought an investment property in their preferred retirement location. After 15 years of having their mortgage paid by various tenants, they were able to retire early and, with a reverse mortgage, live well without making mortgage payments while on a fixed income.

So how does a novice real estate investor establish a rental portfolio?

First, turn off HGTV and forget everything you’ve heard there about house flipping.  Second, ignore the late-night infomercials about buying homes with no money down. Third, consult with a financial planner to establish your short and long-term goals and with a mortgage lender to determine your purchasing power.

Buying investment property is nearly always more expensive than buying a personal residence. Several conventional financing options, the Federal Housing Authority (FHA) and the Veteran’s Administration (VA) allow for down payments as low as 0-5 percent on a personal residence, whereas an investor loan could require 25-30 percent down.

Because of the greater risk involved, you will find that interest rates will likely be higher for investor loans as well, so it may be more beneficial to purchase a new residence first and plan to lease out the property you currently own, with your mortgage professional weighing in on how to best accomplish this.

If you love where you live, however, and have the money to invest elsewhere, work with your real estate agent to find a suitable property to buy where the rent will cover or exceed your monthly payment. Seek your agent’s guidance concerning a basic business license, the Tenant’s Bill of Rights, the Tenant’s Opportunity to Purchase Act (TOPA), rental restrictions within a condominium or cooperative, and other requirements for becoming a landlord in D.C.

If your goals include a rentable vacation or future retirement home, visit the area several times to ensure it fits your lifestyle before making a commitment. Obtain a referral from your real estate agent here to one in the new area who will be able to advise you on the ease of renting, local housing regulations and property management.

Finally, and equally important, discuss IRS implications of owning investment property with your income tax professional to be sure you are getting maximum benefits and not committing any tax code violations. After all, I don’t want to be making out my rent checks to #8560781 c/o The Big House.

Valerie M. Blake can be reached at 202-246-8602 or at Valerie@DCHomeQuest.com. Each Keller Williams Realty office is independently owned and operated. Equal Housing Opportunity.

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