The first few homes I purchased were driven entirely by where I was living. And they were, in fact, purchased so that I would have a place to live! However, once I decided I wanted to own investment property, it didn’t necessarily need to be where I was living. This opened up what felt like endless possibilities, and at first it made it hard to figure out how I would determine where my next property would be.
Mortgages in the U.S. are typically federally regulated. So, as a mortgage loan originator by trade, I knew that my financing would look almost exactly the same regardless of where I purchased. So I decided to consider the next biggest monthly carrying cost which is typically going to be property taxes and homeowner’s insurance.
I’ve been a licensed loan officer in Florida and in the DC area for many years. I am well acquainted with the drastic swing in property taxes and even more so in homeowner’s insurance premiums between states – and how big of an impact this can have on someone’s monthly payment. The best way for me to create a positive cash flow with my future investment property was going to be to keep these monthly expenses as low as possible.
At the time, we were planning to buy a vacation home that we would rent out as a short-term rental and use when it was available. So, I narrowed my search based on the places I loved to visit that would also have high rental demand. The Florida Keys were QUICKLY eliminated due to the insurance costs in coastal areas (especially in Florida). The Bahamas were ruled out due to my lack of familiarity with a foreign market. So I changed gears from ocean to mountains and landed in sweet, sweet North Carolina.
The property tax rate was less than a third of what I paid for any of my other properties. It also happened to be a low risk insurance market that made the insurance premium a fraction of what I paid for my other properties as well.
It is a well-known second home market with healthy rental demand. In fact, many of the homes we considered buying already had rental income history that the sellers’ were willing to share. This was huge for us buying in a new market. I requested every set of rental history that was offered online, even on listings I wasn’t necessarily going to pursue. If you’re looking to buy a rental property – doing your homework to estimate your potential rental income is crucial. Keep an eye out for a post specifically dedicated to effective ways to research rental income.
Lastly, another bonus we encountered is that most of the homes in this area were being sold completely furnished. I have found that this is relatively common in predominantly second home markets. Furnishing and stocking a vacation rental can cost tens of thousands of dollars (I would know because I did it in Florida). Skipping this step was a huge savings opportunity.
There is so much more that factors into affordability than your loan terms. Make sure you’re keeping a big picture view when considering purchasing, especially in a new market.
Subscribe below to follow along to get all of your questions answered and to get excited about building wealth with property.
