Residential Real Estate is the first step in the path to homeownership, wealth creation, and leaving a legacy. It is comprised of single family homes, multifamily 2-4 unit properties, condos, and more. Here are some examples:
Single Family Homes: A structure built on a single lot that has one unit. Homebuyers may choose to rent out the property to a Tenant. This is a great way to start investing and benefiting from the appreciation of the property over time so a Buyer can purchase their own home.
Multifamily Homes: A structure built on a single family lot that has 2-4 units. Homebuyers who live in one unit are Owner-Occupants. They can rent out the other units, which is another great start to investing in real estate.
Condominiums: Multiple units in one building, each unit is privately owned and the building is managed by an association. The owners pay association fees to cover the cost of managing the common areas and grounds of the building.
Townhomes: A cross between single family and condominiums, a townhome is a single structure on a shared lot or complex. Some townhomes are stand-alone while others may share a wall with an adjacent townhome. These are usually 2-3 stories and can be a lower cost than a single family home and may be part of an association.
Mobile Homes: A home that can easily be moved from one location to another, these single family structures are mostly found in mobile home parks. The Buyer may or may not have to rent the lot space the mobile home sits on. A mobile home is one of the most inexpensive homes on the path to homeownership and creating wealth.
The Buyers and Tenants of Residential Real Estate are one or more individuals and families, with the majority of single family homes being purchased or leased by new or established families.
To purchase a residential property, most Buyers will work with a Mortgage Loan Originator (MLO) to Finance a Home Purchase. Once the purchase is complete, the lender places a Lien on the property, commonly known as a Mortgage. This is how the loan is securitized. But two of the biggest challenges most Buyers face in qualifying for a loan prevent them from becoming homeowners: Debt-to-Income Ratio (DTI), which cannot be more than 43% of their total income, and the down-payment, usually 20% of the purchase price for a conventional loan.
Fortunately, there are many down-payment assistance programs available to Buyers who meet program criteria for household income requirements. If a Buyer is still not able to produce the minimum allowable down-payment of 3.5% for most of these programs, they still have options. One option is a Lease Option Purchase and another is to Invest in real estate, such as purchasing an Owner-Occupied rental property, like a duplex. Depending on lending requirements, a lender may allow a borrower to use up to 75% of income from the rental property to qualify for a loan.
The best way to approach the purchase of a home is to have a plan based on your needs, affordability, and what I think of as the secret sauce – incorporating a real estate investment strategy into your plan to create living and legacy wealth.
If you are a new Buyer and are seeking guidance, support and representation with your purchase and would like to create an Buyer’s Investment Strategy, Book a Zoom Call today for your Free Buyer Consultation.