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Buying a home is one of life’s most rewarding milestones. However, as a prospective homebuyer, you may have noticed how much the real estate landscape has changed over the past few years.

Let’s take a look at how a temporary mortgage buydown concession could reduce your interest rate and make your initial monthly payments more affordable.

What Is a Temporary Buydown on a Mortgage?

A temporary buydown is a mortgage financing strategy that allows a homebuyer to lower their interest rate and payment for a predetermined amount of time through the payment of mortgage points at closing (whether by the lender, homebuyer or seller).

What’s a mortgage point? A mortgage point, also known as a mortgage discount point, equals 1% of your total loan amount. For example, a mortgage point on a $200,000 loan would be $2,000. When you purchase points in a mortgage buydown, you’re essentially prepaying interest upfront at closing in exchange for a lower rate, i.e., “buying it down.” Typically, a lender may offer a .25% rate reduction in exchange for one point.

How long could the rate and payment reduction last? Up to three years.

How much could the rate be reduced? A maximum of 3%. The rate is lower in the introductory period and increases over time — a maximum increase of 1% per year — to the original quoted rate.

What happens to those mortgage point payments? The money will typically go into an escrow account. Those funds temporarily subsidize your interest rate for the agreed-upon time period.

According to Scott Bridges, senior managing director of Pennymac’s consumer direct lending division, the benefit of a buydown is simple. “In short, the buydown allows a buyer to combat higher market rates,” he explains. “The first year of the loan, your rate and payment will be based on a rate that is 1% lower than the market rate. So if current rates are 6%, your first year of payments would be based on a 5% rate. That reduced rate for year one can save the average consumer several thousand dollars in payments (depending on loan amount).”

While interest rate discounts, loan terms, and conditions vary by lender, a buydown can be a good option for temporarily lowering your monthly mortgage payments at the start of your loan.

What Are the Benefits of Buying Down an Interest Rate?

There are several reasons you may want to buy down your mortgage rate. Here are a few potential budget-friendly benefits:

  • Lowers initial monthly mortgage payments. If you have a temporary buydown, those points you pay for upfront can make your initial mortgage payments more manageable, which can be especially helpful if you’re at the beginning of your career and expect your income to rise in the future. Those early savings will also add up to less interest paid over the life of your loan.
  • May boost your buying power. A reduced interest rate and the subsequent lower monthly mortgage payment may help you qualify for a higher mortgage, enabling you to purchase a more expensive home.
  • Can be arranged for both purchases and limited cash-out refinances. Whether you’re buying a new home or doing a limited cash-out refinance and replacing your current mortgage with a new, slightly larger mortgage, you may qualify for a temporary interest rate buydown.
  • Potential tax write-off. While a seller, builder, or lender may cover the buydown to facilitate a sale, the points may be deductible as home mortgage interest if you’re the buyer and pay for the buydown.1
  • Reduces rates for fixed-rate and adjustable-rate mortgages (ARM). You can purchase points to lower your interest rate on a fixed-rate mortgage and during an ARM’s introductory fixed-rate period. Depending on the buydown structure, rates may be reduced up to 3% for a maximum of three years.
  • More money in your pocket. A lower mortgage payment at the start of your loan could free up cash to pay bills or make home improvements.
  • Allows you to watch the market. A buydown gives you an opportunity to watch the market while saving on your monthly payments. “As rates move up and down during and after that first year, you can refinance into a lower rate with the knowledge you had a full year of reduced mortgage payments,” Bridges notes.

How Much Does It Cost to Buy Down the Interest Rate?

Generally speaking, the approximate cost for a temporary mortgage buydown equals how much you’ll ultimately save in interest. But several factors will be taken into account:

  • How much money you’re borrowing
  • How many points you’re buying; each point costs 1% of the mortgage amount
  • Type of buydown structure

Who funds a temporary mortgage buydown? In most cases, the buyer will pay the mortgage points, but in some instances, the buydown could be fully or partially funded by the seller, lender, or third party, such as a realtor or builder.

How long will the reduced interest rate be in effect? The lower rate and payment will be in effect for up to three years, depending on the rate buydown structure. Below are a few different types of mortgage buydowns.

Rate Buydown Structures

There are several types of rate buydown structures. If your lender offers you a buydown — most, but not all, lenders do — you will have the opportunity to negotiate pricing and determine which structure suits your financial needs. The following are the most common types of temporary mortgage buydown structures.

3-2-1 Buydown

A 3-2-1 buydown is a home financing arrangement that will reduce a homebuyer’s interest rate for the initial three years. The lowest interest rate is in the first year, increasing to the permanent quoted rate after the third year.

3-2-1 Buydown Basics

  • Reduces rate by three percentage points in the first year of the mortgage
  • Reduces rate by two percentage points in the second year
  • Reduces rate by one percentage point in the third year
  • Borrower pays full interest rate after the completion of the third year and is fixed for the remainder of the loan

3-2-1 Buydown Example

This chart shows how a 3-2-1 rate buydown could potentially work if you were to qualify for a 30-year, $200,000 mortgage at a rate of 7%:

Mortgage Year Interest Rate Monthly Payment (Principal and Interest) Monthly Savings Annual Savings
1 4% $954.83 $375.77 $4,509.24
2 5% $1,073.64 $256.96 $3,083.52
3 6% $1,199.10 $131.50 $1,578
4 – 30 7% $1,330.60 $0 $0

In this scenario, the total buydown cost would be approximately $9,171, the amount equal to the first three years of interest savings. The chart amounts don’t include insurance or taxes, and you will want to assume no points contribution from the seller, builder, lender, or a third party.

2-1 Buydown

A 2-1 buydown is a type of home financing arrangement that reduces the interest rate on a mortgage for the first two years, after which the rate rises to the permanent quoted rate.

2-1 Buydown Basics

  • Reduces rate by two percentage points in the first year of the mortgage
  • Reduces rate by one percentage point in the second year
  • Borrower pays full interest rate after the completion of the third year for the remainder of the loan

2-1 Buydown Example

This chart shows how a 2-1 rate buydown could potentially work if you were to qualify for a 30-year, $200,000 mortgage at a rate of 7%:

Mortgage Year Interest Rate Monthly Payment (Principal and Interest) Monthly Savings Annual Savings
1 5% $1,073.64 $256.96 $3,083.52
2 6% $1,199.10 $131.50 $1,578
3 – 30 7% $1,330.60 $0 $0

In this scenario, the total cost of the buydown would be approximately $4,661.52, the amount equal to the first two years of interest savings. The chart amounts don’t include insurance or taxes, and assume no points contribution from the seller, builder, lender, or a third party.

1-0 Buydown

A 1-0 buydown is a type of home financing arrangement that reduces the mortgage interest rate by 1% in the first year, increasing to the permanent quoted rate after that initial year.

1-0 Buydown Basics

  • Reduces rate by one percentage point in the first year of the mortgage
  • Borrower pays full interest rate after the completion of the first year for the remainder of the loan

1-0 Buydown Example

This chart shows how a 1-0 rate buydown could potentially work if you were to qualify for a 30-year $200,000 mortgage at a rate of 7%:

Mortgage Year Interest Rate Monthly Payment (Principal and Interest) Monthly Savings Annual Savings
1 6% $1,199.10 $131.50 $1,578.00
2 – 30 7% $1,330.60 $0 $0

In this scenario, the total cost of the buydown would be approximately $1,578, the amount equal to the first year of interest savings. The chart amounts don’t include insurance or taxes and assume no points contribution from the seller, builder, lender, or a third party.

Who Can Buy Down a Mortgage?

In most cases, the buyer will buy down the mortgage, but there are times when the seller, builder, or lender will offer to purchase points and pay for the buyer’s mortgage buydown. Let’s take a look at each scenario.

Buyer-Funded Buydown

When a buyer negotiates a buydown with a lender, they pay a certain amount of points upfront at closing in exchange for a reduced interest rate. Depending on the buydown structure, the rate could be temporarily lowered for up to three years or the entire loan term. Most mortgage buydowns are buyer-lender arrangements.

Seller-Funded Buydown

A seller-funded buydown is when a highly motivated seller purchases points and buys down the homebuyer’s interest rate. This seller concession can help “seal a deal” by incentivizing and speeding up a home sale. Subsidizing a mortgage buydown can:

  • Give a seller a competitive advantage without having to lower the listing price
  • Help increase the borrower’s purchasing power
  • Make it easier for buyers to qualify for financing
  • Expedite the home sale process

A possible win-win for both the seller and the buyer. The seller could make a faster sale while holding on to more profits than they would if they lowered the asking price. The buyer saves money with a lower interest rate.

Builder-Funded Buydown

Homebuilders can offer mortgage buydowns to attract prospective homebuyers. As interest rates climb and the new-home market slows, builder buydowns are becoming an increasingly popular selling strategy. A recent survey found that 75% of nationally surveyed home builders confirmed they are buying down buyers’ mortgage rates to make payments more affordable.2 Builder buydowns can:

  • Lure buyers in a competitive and high mortgage market
  • Make new homes more affordable to a broader range of buyers
  • Be offered as part of a package, such as an upgrade or closing cost contribution

A builder buydown arrangement may require the buyer to go through the builder’s mortgage company for the mortgage.

Lender-Funded Buydown

Lenders may offer to subsidize a buydown by contributing all or some of the funds for the mortgage points. This concession option could help increase your negotiating and purchasing power as a borrower.

A temporary lower interest rate is certainly enticing, but mortgage buydowns aren’t for everyone. Buying mortgage points in exchange for a rate reduction may not be in your best interest if you are…

  1. Having trouble meeting loan qualification criteria: You must qualify for the standard loan terms without the benefit of the buydown. This also includes:
    • Having a minimum 660 FICO score
    • Meeting the applicable Fannie Mae requirements
    • Submitting mandatory documentation
  2. Purchasing an investment property or manufactured home: A mortgage buydown can be arranged for a principal, owner-occupied home, or a second home. It’s not available for investment properties or manufactured homes.
  3. Planning on selling soon: There are substantial upfront costs involved with buying a new home, including the down payment and closing costs. Add mortgage points to the mix and it will take time to “break even,” meaning the time it will take for your savings to outweigh those costs to lower your interest rate. If you sell in the near future, you may not have been in the home long enough to recoup those point costs.
  4. Doing a regular cash-out refinance: Mortgage buydowns are allowed on purchases and limited cash-out refinances only. Limited cash-out refinances follow Fannie Mae guidelines restricting the cash-back amount to $2,000 or 2% of the new loan principal balance, whichever is less.3
  5. Short on cash: If you have limited cash, the high upfront costs may deplete your savings, leaving you short on funds you may need to cover other future expenses. Instead of buying points, you may want to allocate those funds to paying down high-interest debt or building an emergency fund.
  6. Making a small down payment: If you’re purchasing a home and contributing less than 20% to the down payment, or if you’re refinancing and have less than 20% equity, you’ll likely have to pay for private mortgage insurance (PMI) on your conventional loan.4 The premium will be added to your regular monthly payment. Rather than pay for points, consider using that money to make a larger down payment.

When can a mortgage buydown make sense? This home loan strategy is worth exploring if…

  1. You have enough liquid cash: If your savings is enough to cover the down payment, closing costs, and mortgage points — and you have a cash reserve left over — a temporary mortgage buydown can be a great option for reducing your interest rate for up to three years.
  2. You expect your income to rise: Starting your career? Re-entering the workforce? If you anticipate that your income will rise within the next few years, a temporary mortgage buydown can help you ease into homeownership with a lower initial interest rate and payment.
  3. The seller, builder, or lender is paying for the points: If you’re a homebuyer and the seller, builder, or lender offers to purchase the mortgage points for you, a temporary buydown can be an easy way to save money without any point-related, out-of-pocket expenses.

“Lots of people avoid buying a home when rates are higher,” says Bridges, “but this program allows you to at least achieve some reduced payments and real savings for a year.”

Higher rates can also significantly slow down home buying demand. That means, Bridges adds, “You will likely pay less for the house than you would in a low rate market when multiple buyers tend to bid over asking.” With a buydown, you set yourself up to win on multiple fronts. “You get a deal on the house you want, save money on the purchase price of the home in this higher rate market, save money on the monthly payment in year one, and refinance when rates drop.”

The Permanent Mortgage Rate Buydown Option

Want to lower your interest rate and monthly mortgage payment for your entire loan term? In addition to a temporary buydown, you may be eligible to negotiate a permanent buydown with your lender.

  • Protects against rate hikes. The lower rate will never increase during the loan term as long as you have a fixed-rate mortgage.
  • How much does it cost? The rate typically costs between six and eight points. Costs are added to the closing fees.

Ready to learn more about how Pennymac can help you find the right home loan? Begin your online application now, and if you still have questions, contact a Pennymac Loan Expert. We’ll help you evaluate your mortgage buydown options and decide the best course of action for your unique situation.

1 https://www.irs.gov/taxtopics/tc504

2 https://www.realestateconsulting.com/the-light-rate-buydowns-help-buyers-purchase-new-homes/

3 https://selling-guide.fanniemae.com/Glossary/1044658971/What-is-the-definition-of-a-limited-cash-out-refinance.htm

4 https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/

Source: pennymac.com

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Posted on: July 31, 2018

Nothing you’ve done up to this point compares to owning a home. Buying a home is often the biggest purchase someone has made in their life, and it’s a big milestone – and financial commitment.

As exciting as moving into your own home is, you shouldn’t get swept up too quickly. Things are going to need attention and you’re going to need to budget for future expenses.

To avoid making your big purchase feel like a big mistake, here are some tips that responsible new homeowners should follow. With a little prep and planning, you can make your purchase a happy, positive experience.

Check today’s rates.

Budget for new costs

Before moving into a home, the buyer was most likely renting. Mortgage payments aren’t too far from rent payments, so you’ll be ready for that. But there are other costs to be aware of.

Property taxes are not only going to be there the entire time you own your house, but they’re likely going to increase as the value of your home rises. While you don’t need to keep a long-term plan to keep up with rising taxes, you should be prepared to budget for them annually – and expect to pay more each year.

Utilities are also a huge expense, especially for homeowners that aren’t prepared. Heating and cooling can account for nearly half of your total energy costs, so you should track your usage and invest in a smart system that reduces costs while keeping you comfortable.

On top of these, other expenses you should prepare for include:

  • Homeowners association (HOA) dues
  • Homeowners’ insurance
  • Mortgage insurance (not applicable to homeowners with a VA loan)

Add all these up and you’ll likely be paying a bit more than you were with your rental. On the plus side, you’re now paying for a property that you own.

Know what needs maintenance and cleaning

If something is neglected for too long, permanent damage could be caused. This means spending money to fix or replace it.

Keeping your home clean is important, from the carpets to the window screen to the gutters. You should also be checking on your roof, water heaters, furnace and other major appliances. Air conditioning filters will need to be replaced regularly, and lightbulbs are bound to go out eventually.

While spending money on something that isn’t broken can be frustrating, it’s better than waiting until the last minute. If that happens, you may end up spending much more than you could have if you acted earlier.

Click to check current rates.

Budget for furniture and appliances

Your home is probably going to be a bit bigger than your apartment, which is good. But you probably only have enough furniture to fit your old rental, so you might have to get some more furniture.

Furniture can be expensive, especially when new. Check out consignment stores to find good deals, and ask friends and family if they have old furniture they’re no longer using.

Appliances can also be pricey. If you haven’t bought the home yet, see if you can convince the seller to leave the appliances behind. These are called seller concessions, and they’re negotiated in the contract.

Get homeowners insurance

While homeowners insurance might seem like a waste of money, ignoring it could be the worst mistake a homeowner makes. You’ll probably be required to get homeowners insurance when you get a mortgage, but some homeowners drop it after so many years.

Remember, this is the biggest purchase you’ve ever made. You’ll want to keep it protected, even if it means spending a little extra each month.

Cash in on your tax return

Here’s a good part about owning a home: you can deduct a lot of expenses and end up getting a bigger tax return.

You should hire a professional accountant the first year you own a home, even if you do your own taxes. They’ll be able to help save you money, and you’ll be able to see how. There are too many intricacies to taxes and homeownership to go through, so you’re best off spending money on an accountant in year one and using your newfound knowledge in the future.

Keep some money in an emergency fund

The unfortunate reality of life is that things will go wrong at some point. You can avoid making these bad things worse by keeping an emergency fund.

There’s no perfect amount to keep aside, but many financial planners advise that you put aside 3-6 months’ worth of expenses. If you can save more, it’s never a bad idea.

Check today’s VA rates.

Source: militaryvaloan.com

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These days, more Americans are opting to buy their cars online — from researching vehicles to making final purchases and having the cars delivered, all from the comfort of their homes. With the surge of car-buying apps, online car marketplaces and more dealerships that offer online options, it has become increasingly easy and accessible to trade in traditional dealership shopping with online car-buying.

A 2022 Cox Automotive Car Buyer Journey survey found that 68% of car shoppers plan to complete most of the car-buying process online in the future, while 80% of respondents agreed that it’s a good or great idea to buy a car entirely online.

Indeed, buying a car online can be more convenient for many: Buyers can complete the entire process from their couches and have a variety of options at their fingertips. However, there are advantages to in-person car-buying, namely the ability to negotiate, that online car purchases might not offer. Consider these advantages and disadvantages when deciding which option is right for you.

Buying a car online

Consumers who want to purchase a car online have several options. Top car-buying platforms like Autotrader and Carfax offer car listings from dealerships and private sellers and let shoppers search by make, model and price. Online auto dealers like CarMax and Carvana also have apps where buyers can complete the entire buying process and have a car delivered, while traditional marketplaces like Facebook Marketplace and Craigslist allow shoppers to find options in their local areas.

Advantages of buying a car online

Buying a car online offers shoppers the ability to complete the car-buying process at their own pace and without the pressure or hassle of going to a physical dealership. Additional benefits of purchasing a vehicle this way include:

You don’t have to leave your house

The clear benefit of choosing to complete the car-buying process online is the convenience it provides. Shopping through an app can save you time if you’re too busy to visit a dealership and is a useful alternative for those who are unable to visit a lot in person due to accessibility reasons. Most vehicles available through these platforms can even be shipped and delivered to you, meaning you truly do not need to leave your home.

There are more options available

Car apps and online marketplaces allow shoppers to expand their shopping radius and view more options than would typically be available from strictly going to a local dealer. Shopping from a larger pool can make it easier to find the car you’re looking for, which is particularly useful in the current market where supply-chain issues and a shortage of semiconductor chips continue to limit available options.

It’s easy to compare vehicles

Even when you do extensive research online before going to a dealer, it’s hard to keep track of and compare all your car options on the lot. Although some carmakers offer comparison tools on their websites, you can only compare vehicles from that maker — you can compare different cars made by Honda, for example. Many online platforms offer tools that make it easy to compare cars from different makers, side by side.

For example, the online car-shopping platform Edmunds has a car comparison tool that lets you view up to four cars side by side, with information like pricing, consumer ratings, standard features and other specifications like engine power.

Edmunds, and other apps like TrueCar, also offer built-in tools like buying and leasing loan calculators that can help buyers determine how much they can afford to pay monthly.

Disadvantages of buying a car online

Although buying a car online can be convenient, there are also some disadvantages to shopping this way. Here’s what you can expect.

You can’t see the physical condition of the car

One of the most important steps in the used-car buying process is test-driving the vehicle to see how it actually runs on the road. While you can get a general sense of how reliable a car might be online or through a vehicle history report, driving the car in person makes it easier to spot any potential problems, and it helps to ensure you don’t pay for a damaged vehicle.

Note that some online car services like Carvana and Vroom have return policies that allow buyers to return vehicles they’ve purchased, within a certain time frame.

There’s less room for negotiation

When buying a car from an in-person seller or dealer, there’s typically room to bargain down the sticker price. However, some online auto retailers like Carvana do not negotiate on pricing, which means that the price a vehicle is listed at is always the price you’ll pay.

Buying a car in person

Despite the rise of online car-buying, most Americans still buy their cars in person or at least complete the bulk of the car-buying process in person.

Advantages of buying a car in person

Physical car shopping means that buyers can see the cars they’re interested in, in person, and test drive their options. Some additional pros to buying a car in person include:

You can negotiate the price

It’s typical for buyers to negotiate a vehicle’s price down, whether they’re buying from a private seller or from a dealer. And doing so can often save them a lot of money off a car’s sticker price. Note that the recent car market has given dealerships the flexibility to add market adjustments to a vehicle’s manufacturer’s suggested retail price, or MSRP. These adjustments can sometimes be negotiated.

In contrast, as noted above, there’s typically no room to negotiate when buying a car entirely online, which means the price you see is the price you pay.

Potentially more incentives

The number of deals and incentives available to buyers in the current market continues to be limited. However, traditionally, it’s common for manufacturers and dealers to offer incentives and discounts in the form of lower financing rates, lease deals or cash rebates on the lot.

While you can browse new car incentives and rebates offered by make on platforms like Edmunds, incentives are typically not offered or readily available through online car retailers like Carvana, for example.

Disadvantages of buying a car in person

In addition to the inconvenience of visiting a dealer, often limited car options and how hard it can be to compare vehicles side by side, downsides to physical car shopping also include:

Pressure to make a purchase

Online car shopping apps allow you to go at your own pace. If no car piques your interest, you can take a break. However, on the lot, salespeople often have quotas and get paid based on how much they sell. This means they can be pushy and pressure buyers to make a purchase when they’re not ready to, or to buy a car that may not be right for them. Know that you can always walk out at any point during a sale.

Less financing flexibility

Dealerships make money off of financing your car with their lender or loans. This means they want you to finance through them, giving you less flexibility with what financial institution you can use to finance your car. On the bright side, if you enter a dealership with a preapproved loan offer, show the dealer you’re prepared and require it to match your preapproved interest rate, you can save money in the long run.

Bottom line

The important thing to know about how you choose to purchase a car is that it doesn’t have to be all or nothing. You can choose to start your car-buying process online by researching and seeing what cars are in your area, and then visiting the dealership to complete the purchase in person. Regardless of which option you chose, make sure you do your research and purchase through a reliable app, marketplace, seller or dealer.

Source: nerdwallet.com


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Being a homeowner comes with a steep learning curve, and many first-time homebuyers struggle financially in their first year of owning a home. After years of saving for a down payment, they are blindsided by the extra expenses that come with buying and owning a house. It’s frighteningly easy to exhaust your cash reserves before you even move in.


Misunderstandings about the costs of owning a home can push people even further into financial distress. You can avoid a lot of this trouble by doing your research and determining how much house you can actually afford. Develop a sample budget to help you prepare for the cost of homeownership and the expenses that come along with it.


Hidden Costs of Homeownership

Here are some expenses prospective homeowners often forget to consider while they are shopping for a new place to live. Keep these figures in mind as you set your budget for a home.

Utilities

If you’re used to paying for utilities and other costs of living as a renter, it can be tempting to think that homeownership won’t alter your budget significantly — especially if your estimated mortgage payment will be less than what you’ve been paying for rent. However, your new home may use substantially more electricity and gas than an apartment, townhouse, or smaller rental house. Plus, your monthly rent may have included utilities like water or internet. 

Mortgage Payment

Each month, most of your mortgage payment will go toward your principal and interest. However, you’ll also pay additional expenses such as property taxes, homeowners insurance and mortgage insurance. Insurance companies assess these expenses annually, but your lender will collect the fees each month with your mortgage payment and hold the funds in escrow. If you choose a home in a neighborhood with a Homeowners Association (HOA), you’ll also have HOA dues to include in your budget.

Furniture and Decor

New rooms could mean new needs. When you buy a house, the furniture you used in your rental may not be a perfect fit for your new home. Paint, curtains, furniture, and other decorative items can personalize your new home but can be a strain on your budget. If the thought of all new furniture and decor is overwhelming, choose one room to finish at a time.

Lawn Care

As a first-time homeowner, you may find yourself with a whole new set of outdoor responsibilities — mowing grass, trimming hedges, and keeping weeds at bay. If you buy a home in a neighborhood with an HOA, you may face strict lawn care standards.
Whether you choose to do it yourself or hire a service to take care of it for you, lawn care can get expensive. If you go the DIY route, you’ll need to purchase equipment and supplies to get the job done, such as:

  • Lawnmower
  • Weed-eater
  • Hedge trimmer
  • Weed killer
  • Fertilizer
  • Grass seed
  • Pest control products

If you hire a company to take care of your lawn, expect to pay between $100 and $200 per month for basic care.

Renovations

Once the excitement of buying a new house starts to subside, your focus may shift to how your new home meets your needs. Unless you built a home with custom options, you may eventually want to update or renovate.

Renovations are becoming increasingly common among first-time buyers. According to a 2017 study by Houzz, first-time homebuyers spent an average of $33,800 on home renovations in 2016 — up 22% from 2015. Among all homeowners surveyed, the greatest motivating factor for renovating was a desire to customize their home.

Maintenance and Repairs

Maintenance and repairs can be a major budget killer for new homeowners. Many first-time homebuyers overlook the age of the roof, exterior paint, AC unit, and furnace when they buy a home. Even if you buy brand-new construction, you should begin saving for necessary maintenance updates and unforeseen repairs.

Don’t exhaust your savings to purchase your home; keep some money aside for necessary or unexpected repairs.  Some financial experts suggest saving 1-4% of the home’s purchase price each year, depending on the age of your home.

Your homeowner’s insurance should cover damage due to fire or weather, but you’ll still need cash to cover the deductible, which could be anywhere from $200 to $2,000, or more. If you’re concerned about having enough cash on hand in the event of an emergency, look into plans with a higher monthly premium and a lower deductible.


A Sample Budget for Your First Year of Home Expenses

The price for a starter home will vary widely depending on where you live. Looking at average starter home prices around the country and landing somewhere in the middle, here’s a sample budget.

The following sample budget is an example of what your monthly home-related expenses would look like if you purchased a $200,000 home with a 5% down payment. For this sample, we used an online mortgage calculator and the average 30-year fixed mortgage interest rate of 5.10%.

Mortgage Payment

Monthly mortgage payment: $1599


Utilities and Lawn Care (based on national averages)

Gas $82
Electricity $183
Water $40
Sewer / Garbage $20
Internet / Cable $147
Lawn Care $150

Monthly utilities expense:$622


Recommended Maintenance/Repair Fund

Repairs/ Maintenance   $4,000 (based on 2% of purchase price)

Monthly repair/maintenance savings: $333

For this sample budget, your expenses would work out to $2,554 per month. That’s nearly $1,000 more than your monthly mortgage payment.


The Takeaway

Don’t make the mistake of asking how much house you can buy — instead, examine your income and projected expenses to figure out how much you can afford. If you’re buying a home with a spouse or significant other, be sure you’re on the same page.

An experienced real estate agent is an excellent resource. Ask lots of questions: inquire about the home’s roof and exterior, as well as appliances and heating or cooling systems. Your agent can also request information about HOA fees and utility usage from the seller.

For more information on home buying and selling visit Owners.com.

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Last Updated on February 2, 2023 by Mark Ferguson

Turn-key rental properties can be a great option for investors looking to get cash flow without a lot of work. They are also a great option for investors who cannot find cash-flowing properties in their state and must invest in a different area. Turn-key rental properties are fully repaired, rented, and managed by a property manager. Buying a turn-key property allows a long-distance investor to buy a property that cash flows with minimal work. I own a lot of local to me real estate, and I have bought a turn-key rental as well out of my area. You must be very careful with the property you buy and the company you use. While turn-key rentals can help investors buy cash-flowing rentals in different markets, it can also be a risky investment.

What is a turn-key rental property?

Some consider a turnkey property to be a house that is remodeled and needs no repairs, but for this article, we are talking about rental properties that are set up to make money right away. I consider turn-key to mean the home needs no repairs and has a tenant and property management in place. Make sure you and whomever you are talking to about turnkey properties have the same definition of turn-key!

There are many companies that will sell turn-key rentals to real estate investors, but be very careful when using these companies. Some are great and some have caused investors huge losses. Make sure you vet whatever company you use.

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What are the advantages of turn-key rental properties?

One of the biggest problems for many investors is finding affordable properties that will make money. Turn-key rentals are often located in areas that have low prices and relatively high rents.

Here are a few advantages to buying turnkey rentals and why I bought a turn-key rental:

  1. Easy to find: You can buy a turn-key property very quickly from turnkey providers who have a stock of turn-key properties available to purchase. Turn-key companies can have a large inventory of turn-keys because the properties are providing cash flow and are making money while the company owns the properties. You do have to know the right turnkey companies to work with.
  2. Less work than a normal rental: Turn-key properties are already rented, managed, and repaired. You do not have to find contractors, property managers, or real estate agents.
  3. Provide cash flow from day one: The first day you buy a turn-key, it will have a tenant in place paying rent. You do not have to worry about how long the repairs will take or how long it will take to get a tenant.
  4. Provide a great return: Most turn-key rentals provide 10 to 15 percent returns. The return begins right away and takes little work to maintain because a property manager takes care of the house for you.
  5. Provide diversification: Buying turn-key rentals in different markets of the country gives you diversification.
  6. Can be bought for cash: Many foreign investors have trouble buying properties because they cannot get financing. Turn-key rentals can be as inexpensive as $30,000, making them easier to buy with cash.
  7. You can invest your retirement savings: You can invest a self-directed IRA or 401k into turn-key rentals.

What are the disadvantages of turn-key properties?

While there are many advantages to buying a turn-key rental property there are disadvantages as well:

  1. Turn-key rentals are usually priced at retail value or even above retail value. I like to get a great deal on my rentals and that is why I have not bought more turn-key rentals.
  2. It can be tough to know where to buy a long-distance rental or keep track of it. You must have a great property manager to make sure the home is maintained and managed right.
  3. Not all turn-key companies are reputable and many take advantage of long-distance buyers because they do not see the property.
  4. There may not be as much cash flow with a turn-key property than if you buy it yourself.

How can you find turn-key rental properties?

There are many turn-key rental property providers throughout the United States. Some companies are specific to local markets such as Memphis, Ohio, Missouri, Florida, Texas, Chicago, and Wisconsin while other companies have properties all over the country. The properties vary in price, rent, financing options, and returns, but a good turn-key property will cash flow. Even with cash flow, I would advise investors to spend time researching the property manager and the area they want to invest in before buying any turnkey property.

A Google search for turnkey rentals will get many results for property managers and houses for sale that are not rented. I have spent a lot of time researching turnkey companies and have met with turnkey companies in person. I have met a lot of turnkey company operators and only met a couple that I trust! Fill out the form below and I will refer a company to you I trust. Your information will not be given to anyone or used for anything except a turn-key rental property company to talk to you about turn-key rentals.

The company I used for my turn-key rental is not one I would recommend and is not selling turn-keys anymore. This is a different company and I have talked to many investors who used them with success.

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Do I invest in long-distance turn-key rental properties?

I had always bought my rental properties in Colorado until 2015. That was when prices became too expensive here to get good rentals. I bought one turn-key property in Ohio that has done okay for me. I have no plans to buy any more turn-key properties because I prefer to find deals on my own in my local market. If I can find the deals I can get a discount which is a huge advantage with real estate. I may buy in other states but I would buy with a real estate agent who is able to search for more houses, but just what the turn-key company owns. A good agent can also find property managers and even contractors. I have a few agents like this across the country in areas with good rent-to-value ratios.

How much do turn-key rental properties cost?

Every turn-key property is different and every location for turn-key properties is different. I have seen turn-key rentals that are repaired, rented, and managed that range from $35,000 to $150,000. I have not seen turn-key properties in higher price ranges because it is much harder to cash flow on a higher-priced rental property than on a lower-priced one. The lower-priced turn-key rental properties usually provide better cash flow and may be a good option for foreign investors who have a hard time getting a loan on properties in the United States.

Can you make money with a turn-key rental property?

I normally do not buy rental properties that are turn-key ready, because they usually cost more. I rarely buy homes that are fixed up, because they usually are not a great deal. Rental property number nine, which I just got under contract, is the closest thing to a fully repaired property that I have purchased (or that I will have purchased). It needed a bit of paint, but that was about it. In a perfect world, I would love for all the rentals I buy to be repaired and rented before I buy them, which is one advantage of turn-key properties.

When I buy my rentals, they usually need work and I get a discount for the money and time I have to put into repairing them. In fact, it is less helpful to buy a home that needs repairs than purchasing a home fixed up, unless you can get a great deal. It is harder to have built-in equity on a turnkey rental, but you do not have to spend time repairing the home, renting it out, or finding a property manager.

When would investing in a long-distance turn-key property be a good idea?

I have had many people reach out to me about investing in rental properties, but they do not know how to start because their market is too expensive. When starter homes are $300,000 or more in an area, it is almost impossible to cash flow on rental property unless you pay cash for it. When you pay cash, your returns are not nearly as good as if you can get a loan (as long as the property cash flows). Rents are almost never high enough on a $300,000 home to cash flow, no matter where you live.

The down payment on a $300,000 property is going to be at least $60,000 unless you use a technique to buy with less money down. Then you have to add closing costs, reserves, repairs, and other costs associated with buying a rental property. I can buy two or three cash-flowing rental properties in my market, where someone in a more expensive area would only be able to buy one that may not cash flow at all. I never invest for appreciation, which is what many people are forced to do in these areas.

If you are in an area with very expensive homes or very low rents compared to home prices, you may want to consider long-distance investing and possibly long-distance, turn-key investing.

Diversification with turn-key rental properties

Many people like to spread out their risk when investing and rental properties are no different. If all of your properties are in one place, it could be riskier if something were to happen to that area. I have all of my rental properties in one place; one reason I like the idea of an out-of-state property is that it would provide diversification.

What is the difference between long-distance investing and long-distance turn-key investing?

Long-distance investing is simply investing in real estate outside of your local market area. You are still in control of the purchase, the renovation, and finding a property manager. This can be a great way to invest if you have a great team that can handle all of these aspects for you or if you are able to travel to handle them yourself. However, it takes a lot of time and work to buy a rental property in another state; you have to control the entire process of finding the property, repairing it, renting it, and finding a property manager.

Why do you need to do due diligence on a turn-key rental property?

Turn-key rental properties are typical houses that have been purchased by a turn-key company, renovated, rented, and have a property manager put in place. An investor still has to perform due diligence when buying a turn-key to ensure the properties are as advertised. The turn-key companies know their clients are out-of-state and they may try to fudge their numbers a bit to make more money on a deal. It does not hurt to have an inspection done on any property you buy even if the turn-key company says the home is completely repaired.

How can an out-of-state investor determine the value of a home

I wrote an article here about how to determine value. Even if a property cash flows great, an investor still does not want to pay much more than market value for a home. It is not easy to determine market value from a long distance, but it is possible. The best way to find out what a home is worth is to get an opinion from a local real estate agent.  You can also use websites like Zillow or Trulia, but I would not count on them to be very accurate.

How can you find a real estate agent to provide a price opinion?

I wrote an article about how to find a great agent here, but many agents will be wary of providing values to an out-of-state investor. My advice is to be perfectly honest with the agent and tell them you are trying to verify if a price on a home is market value. Tell them your situation and see what they say. You should be able to find an agent or two who will give you ballpark values. You may even find an agent who knows of more turn-key properties in the area.

If you want a detailed value you can even order a BPO (broker price opinion) from a real estate agent. Most REO agents perform BPOs for banks on distressed properties. For $75 to $100 you should be able to find an agent who can complete a BPO report. Try looking on usreop.com, nrba.com or reonetwork.com for experienced REO agents. The agent should have their own BPO form they can use that provides three sales, three active comparables and they should know exactly what a BPO is.  If not, find another agent.

How can an out-of-state investor determine fair market rents?

Not only does an investor need to know that they aren’t overpaying for a turn-key property, but they also need to know that the rents are accurate. It is possible a property manager or turn-key company rented a home for more than market rents by charging a premium to an unqualified tenant. You don’t want to buy a turn-key, have the tenant stop paying and then find out the home was rented for more than it should have been.

The best way to determine rents is to call a few property managers in the area. Tell them you are an investor, are buying some homes, and need a property manager. This serves a few purposes; it gives you an idea of market rents, the property manager can let you know if a property will be difficult to rent, and you can interview property management companies in case you need a new one.

You can also check Zillow for rental rates, but again they may not be accurate. You can also look at Craigslist, the classifieds, or check out this article for more tips on determining rental rates.

How to determine if your property management company is good on a turn-key property

The most important piece of a long-distance rental property is the property manager. A bad property manager can cause thousands of dollars in losses through lost rent or damaged property. This article on how to find a great property manager can help you determine if the property manager the turn-key uses or referred you to is any good. Make sure you ask the property management company what kind of screening process they use to check tenants; background checks, credit checks, references, income, and job verification. It is best to let the company tell you what they do and not suggest these screening processes to them.

In some cases, it may be difficult to contact the property management companies. A lot of turn-key companies sell hundreds of properties a year and the property managers do not have time to talk to hundreds or even thousands of prospective buyers.

What can you do if the rents, values, or property management is off on a turn-key?

The first thing you want to do is make sure you discover any issues before you buy a turn-key property! It will be difficult to get any recourse after the fact, although some turn-keys offer rent guarantees and buyback programs.

If you discover a problem before you buy a property, talk to the turn-key. Tell them what the issues are and see what they offer. The more facts and information you can back up your numbers with the better. You may be able to negotiate a better price or have them help you find a new property manager.

This is a great time to see how customer service-oriented the turn-key company is as well. Will they work with you and try to come up with a solution or become defensive? If they won’t try to help at all, then you have a great idea of how good they will be to work with after you buy a property and there is a problem.

Are turn-key rental properties a good option for foreign investors?

Foreign investors can buy homes in the United States, but it is hard for many of them to get financing. Traveling to the U.S., researching markets, finding real estate agents, closing on properties, and then repairing and renting properties is very difficult when you live in another country. Turn-key rental properties make it much easier for foreign or any long-distance investor to invest in rental properties. If you buy a turnkey rental property, you might not make as much money as if you did all the work yourself, but the time and money saved may be worth the cost.

Are turn-key rental properties a good option for self-directed IRAs?

You can invest money from a self-directed IRA into real estate. When you use an IRA to buy real estate, the IRA is buying the property and all income and expenses must go through the IRA. Some turn-key rental properties specialize in self-directed IRA investing and can help investors invest from their IRA into rental properties.

Can you buy turn-key rental properties with less than 20 percent down?

Some turn-key rental property providers offer seller financing that can be used to buy turnkey proprieties for less than 20 percent down. The trade-off with putting less money down is a higher interest rate and loan costs. Rates may be as high as 9 or 10 percent on seller-financed turn-key properties.

Conclusion

Turn-key rental properties are a great way to invest for cash flow when cash flow is hard to find in your market. Turn-key rental properties are also a way to invest in rental properties without having to repair or rent out the house or having to find a property manager. However, it is hard to get a great deal on turnkey rentals because turn-key providers want compensation for all the work they do.

How can you get more detailed information on specific turn-key properties?

If you would like a custom report on turn-key rental properties and more information on turn-key rental property companies, please fill out the form below. Your contact information will not be given to anyone, except a turn-key rental property company.

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Build a Rental Property Empire

Categories Rental Properties

Source: investfourmore.com

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I’ve been talking about down payments a lot lately, thanks to all the new zero down mortgages and 1% down loan options that sprang out of nowhere in the past few weeks.

It seems every lender out there is beginning to introduce a lower and lower down payment requirement to get homeowners in the door. And it might be out of necessity, not just convenience.

The brains over at Realtor crunched some numbers to determine what it would take to come up with the average down payment in America’s 15 top cities and the results weren’t very welcoming.

Perhaps that explains the resurgence of all these low-down payment mortgage programs.

Can You Set Aside $68 a Day for Five Years?

I’ll start with my own beloved city, Los Angeles, where the typical down payment is 17%. In order to squirrel away enough cash for an 83% LTV mortgage, you’ll need to set a daily savings goal of $67.95.

Yes, instead of spending money every day on gas, groceries, lattes, Uber, healthcare, and so forth, you’ll need to sock away $68 for five straight years while still paying all your bills and living your lavish lifestyle.

Only then will you have the average down payment, roughly $125,000, needed to buy a $678,000 median home price. Oh, and that median is rising…

Of course, as I mentioned, there are plenty of loan programs that require a lot less than 17% down, including the many 1% down options surfacing, the 3% down mortgage option widely available, and of course FHA, which only requires 3.5% down.

You can also get a USDA loan if it’s in a rural area and come in with no down payment at all.

So there are options here, assuming you’re able to convince the seller in a hot market that you’ll get approved for a mortgage over someone else willing to put 20% or more down (or simply pay for the house with cash).

Assuming you can’t muster $68 in savings daily, you can stretch out the down payment goal to a full decade and save $33.97 per day instead.

By then home prices might just be on sale again, you never know.

Ready to Save $100+ a Day to Buy in SF?

The scary part is that Los Angeles isn’t even the least affordable city in the nation. If we drive or fly (or take a hyperloop) north to San Francisco, a prospective home buyer will need to save $104.46 per day for five years to come up with the average 21.8% down payment.

Again, that’s if home prices stay put and don’t just keep on rising to the stratosphere. And even then, you’ll still have to compete with a million other home buyers just to get your offer accepted.

That might explain why some banks are offering unique loan options, such as the POPPYLOAN, to high-paid workers who may not have the necessary funds for a large down payment at the moment.

If you want to take things a little slower, you can save $52.23 per day for 10 years and accomplish the same thing. Heck, 2026 might be a great year to finally buy a home!

It’s Not All Bad News

While I touched on some of the more unattainable cities across the nation, or perhaps across one state, there are still bargains out there.

In Detroit, you only need to save $13.14 per day for five years to come up with the 12% down payment needed to buy a median priced home valued at $200,000.

If you extend the timeline to 10 years, the daily saving goal drops to just $6.57. That seems pretty reasonable.

And it will only set you back $15.57 per day for 1,825 straight days to buy a home in Philly, or $7.79 per day for 10 years.

Chicago is fairly reasonable as well, with daily savings of $19.44 required for five years, or $9.72 per day for 10 years.

If that all sounds too cold for you, Phoenix homes can be had for daily savings of $20.14 for a period of five years. Or just $10.07 if you save for a decade.

The takeaway here is that buying a home isn’t an overnight decision, even if there are loan programs out there that seem to make it so.

If you’re a parent, you could start socking away some cash each day/month for your kid so they can move out eventually…

Source: thetruthaboutmortgage.com

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If you’ve been looking for a new home in Utah’s current market, you know pickings are slim. Most buyers know what a few gallons of paint can do. But if you’re willing to take on a couple of additional projects, you can turn that ugly duckling house into an affordable dream. Here’s a few ugly features that aren’t too tough to take on. 

Something underfoot. Floors. Buyers and sellers frequently have different tastes in what’s under their feet. If the seller replaces the carpet before the home is listed, expect a portion of the cost to be factored into the price (listings that say “all new carpet” are going to cost you more). You’re also unlikely to get top-of-the-line carpet if the seller replaces it simply to list. If you’re not scared of living temporarily with threadbare, stained carpet, request a drop in price in the form of a flooring allowance when you make your initial offer. You may also give the entire room a lift by replacing skinny baseboards with the clean lines of the more modern 5” style. Baseboards are easy to replace and cost around $1.50-$3.00 per foot at home improvement stores.

Fireplace blues. A fireplace is a focal point. But an old-school fireplace with brass trim, mauve tile, ugly rock, or beige brick is an eyesore to just about everyone. Few sellers update the fireplace before putting the home on the market. If they do, they’ve probably updated the entire house as well and are asking a justifiably premium price. But a fireplace eyesore can be easily fixed after move-in with paint (1 gallon: $35), new mantle ($150 and up), or even new tile (DIY for ~ $100, depending on the tile chosen and how much you’re replacing). Be sure to determine if your choice of materials is rated for high heat before starting.

Chained in. A fenced-in backyard is a huge plus even when the fence is not quite your style. Chain link is and looks cheap, but it’s also easily covered. Plants, just as fast-growing bamboo,  grape vines, or Virginia Creeper look great year-round. If you need complete cover ASAP, look at privacy netting in decorative patterns (around $2.50 per linear foot). You may also find someone who’s looking to unload scrap fencing or barn wood at a very low price—both make great, rustic fencing options that can be strapped to an existing chain link fence for an all-new look.

Old-school appliances. Regardless of what the listing states, retro doesn’t apply to avocado green appliances or cream-colored dishwashers with fake wood grain trim. But here’s the deal: if those appliances are still in the home you buy, you can bet they’re workhorses, just not pretty. If a seller spends the cash to update the appliances just to sell the house, you probably won’t get top of the line or even the appliances that you may want—and you’ll pay a premium. There are numerous ways to solve unattractive-but-working appliances, however. Search yard sale sites (like KSL Classifieds or local Facebook groups) for people who are remodeling. When people purchase brand new homes they often opt not to keep the builder-selected appliances. Keep your eyes peeled for individuals selling all new appliances—or even entire kitchens!

Dismal driveway. No one ever bought a home because of the driveway… but a cracked one in desperate need of repair drastically reduces curb appeal and brings the listing price of the home down. As a buyer, you’ll benefit from the lower price and you don’t even need to do the driveway repair work yourself. A professional will break up and haul away the old driveway and pour a new driveway all for a couple grand (depending on square footage).

Remember, those nice-looking renovated homes will not only cost you more, but chances are you’d choose different appliances, carpet or flooring for yourself. Buy the house that’s located where you want to live and that has the views and schools you want, then take the time to make the needed updates and repairs as you can afford them.

Source: homie.com

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Last Updated on March 29, 2023 by Mark Ferguson

It may seem ridicculous that real estate agents make so much money on the sale of a house. Selling a house is expensive and much of the cost is a real estate agent’s commission. Real estate commissions are usually paid entirely by the seller and are significant. I am a real estate agent in Colorado and even though agents are expensive they are still well worth it. Real estate agents do not charge as much as they do because of the time it takes to actually sell a house. They charge a lot because it takes work and money to market, it is hard to get licensed and become a real estate agent, they have to pay for dues and insurance and real estate agents usually have to split their commissions with their broker.

The biggest reason real estate agents make so much money is they are worth it! A real estate agent will usually sell your house for much more money than if you sold it yourself.

Why are real estate agents worth the commissions they charge?

A real estate agent’s main value is knowing the market value on a home. If a home is priced too low or too high, it can cost the seller thousands of dollars.  Price a home too high and it will stigmatize the home. Buyers start to wonder what is wrong with the home if it sits on the market even if the price has been reduced. Price a home too low and you could be leaving thousands of dollars on the table.

I hear stories about people who say they saved thousands of dollars when they sold their house by not using an agent; they sold the house in one day with multiple offers! If you received multiple offers on the first day, there is a great chance you underpriced the home and left money on the table. Most likely more money than the real estate agent would have cost. A real estate agent is an expert at pricing homes and a website like Zillow cannot be used as a substitute. I wrote an article about how accurate Zillow is, and it shows you need a local expert to price your house correctly.

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How do real estate agents make money?

In most situations, a real estate agent represents the buyer and seller of a home and both commissions are paid by the seller. This may not seem fair, but there is a very good reason the system works this way. Having the seller pay both agents’ commissions allows there to be a larger buyer pool and higher house prices.

Why does the seller pay for the buyer’s real estate agent?

Buying a house is expensive and most buyers need all the cash they have to pay for the closing costs and down payments. If a buyer had to pay for their real estate agent as well, there would be much fewer buyers who could buy a home. With a bigger buyer pool, more houses sell and sellers can charge more for their homes. Even though the seller pays for the buyer’s agent, the seller makes more money in our current real estate system due to the higher house prices caused by more buyers.

How much is the real estate commission on a house?

This is a tricky question for me to answer because I am a real estate agent. There are no typical or set commissions; they are all negotiable. As a real estate agent, I legally can’t say the typical commission is such and such. Instead, I will link you to this article that explains commissions and tell you HUD pays a 6 percent commission to sell houses; 3 percent to the buyer’s agent and 3 percent to the seller’s agent. I have seen commissions on real estate both higher and lower, but remember there is no typical or set commission rate. Using HUD’s structure the seller would pay $12,000 to the real estate agents if their house sold for $200,000

Why do real estate agents make so much money on one sale?

On the surface, it may look like an agent makes a killing by making $6,000 on each side of the sale of one home. A real estate agent may work 10 hours or less on the listing side, which would equal $600 an hour for listing and selling a home. That is a lot of money, but a real estate agent does much more than work directly on the listing of a home. Most likely the listing agent has to pay part of that commission to their broker which may cut in half what they actually take home equaling $3,000.

There are many more reasons why that $6,000 is not as much as it may seem on the surface. A real estate agent must get licensed, must take continuing education, must pay for MLS, must pay for board dues, must pay for insurance and must market themselves. There is a lot of overhead involved in being an agent and a real estate agent is not just charging for the time it takes to list a home. The real estate agent is charging for their experience and market knowledge that allows a seller to make the most money selling their house.

Most real estate agents do not sell many houses

The truth is the average income for a real estate agent is only $39,000 a year, which I discuss much more here. The reason most agents don’t make much money is they have to pay a broker, many work part-time and many do not sell a lot of houses. The average real estate agent sold 12 houses in 2012, which would equal only $36,000 a year if an agent was making $3,000 per sale like in our example. If you want to be a real estate agent, don’t be discouraged.

Selling a house is not easy and real estate agents know how to do it best

Not only is it hard to determine the value of a house, but it also is not easy to complete the transaction. Many transactions are not completed even with the help of real estate agents. The state contract in Colorado is 17 pages long and there are at least five more disclosures that must be used. Most transactions involve financing which takes a knowledgeable lender and title company. A real estate agent can help a seller and buyer choose the best people to make sure everything goes smoothly and everyone does their job. 

Conclusion

It is expensive to use a real estate agent, but well worth it. Real estate agents go through a lot to become licensed, pay a lot of fees, must work under a broker and bring specialized knowledge that helps sellers get the most for their home. If you are an investor and sell a lot of homes, it may be worth it to become an agent yourself. Otherwise, it will save you money to use a real estate agent.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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Last Updated on February 25, 2022 by Mark Ferguson

Many people have dreams of making it big as a real estate agent, but they want to start slow as a part-time agent. They want the freedom, income, and other benefits that come with being a real estate agent but are afraid to lose a steady income. Getting a real estate license and working part-time as an agent may seem like a great idea, but it is not easy to pull off.

There are some cases when working part-time may work; like an agent who only uses their license for their own investing strategies. There are also a couple of other instances where being a part-time agent can work if you have a very flexible schedule. The problem with being part-time in real estate is that clients need things done at all times of the day. If you cannot get away from your job, you are going to find yourself struggling to help those clients.

How hard is to become an agent?

One of the drawbacks to becoming a part-time real estate agent is how much work it takes to become a real estate agent. One of my team members just got their real estate license. It can take hundreds of hours of education and testing to become an agent. If you already have a job, even part-time, it will be tough to find the time to complete your education.

There are night classes and online classes that you can take to get your real estate license, but you will have to spend a lot of time studying. The real estate exam is not easy to pass and it will take a lot of time to prepare for it. If you want to become a part-time agent, make sure you factor the time it will take to get your license into the equation.

In Colorado, you will need to take 168 hours of classes either online or in-person to complete the education portion. Once you pass the classes you must take the test, pass the background check, and find a broker to work with. This all takes a lot of time!

If you are interested in getting your real estate license, Real Estate Express offers classes in most states and is very affordable.

Will you have enough time for clients?

Once you get your license, you must hang it with a brokerage. After finding a brokerage, you must start working with clients and generating business. This is where it gets tricky for a part-time agent who has another job. Whether you are listing homes or working with buyers, selling real estate is a random hours job. You may not have to work 40 hours per week, but you will have to work all hours of the day.

If you have a day job, you had better be able to get away from that job to take calls for your real estate job. Buyers are going to want to look at houses and offers must be negotiated and presented. If your clients have to wait eight hours to get a hold of you, they are going to get frustrated. There is a good chance you will lose clients if you cannot get back to them in a timely manner. In a tight sellers’ market such as the one we have now, speed is very important in getting offers accepted. If buyers feel an agent cannot submit offers quickly enough for them, they will probably find another agent. If you cannot respond to your clients for hours at a time, are you being a good agent to them?

You can also check out the video below on part-time agents

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What does a real estate agent do?

Most people think that being an agent is about showing houses and writing offers. However, there is much more to being a real estate agent, and that is why we are paid so much for selling homes. Real estate agents have to do many things to close deals and generate business. Here are some of the things an agent must do in order to be successful:

  • Show houses
  • Write contracts
  • Help buyers complete inspections
  • Contact lenders
  • Contact title companies
  • Contact other agents
  • Complete continuing education
  • Host open houses
  • Talk to your circle of influence
  • Create brochures
  • Take photos
  • Create advertisements
  • Answer their phone
  • Floor duty
  • Create plans and goals
  • Manage expenses

As you can see, there is a lot that a successful agent must do. Not only do you have to work with clients, but you have to find clients as well. It takes a lot of time to be a great agent and it is very difficult to do part-time. Being able to answer your phone at any time is one of the best ways to get business. If you are returning calls hours after you receive them, there is a great chance that person already has another agent who called them back quicker or answers their phone.

Can you maintain a good reputation as a part-time real estate agent?

As a real estate agent, I deal with other real estate agents, title companies, buyers and sellers, lenders, attorneys, investors, and many people in our community. My reputation is a huge reason why I have been so successful as an agent, broker, and investor. When you are a part-time agent, it is very tough to find enough time in the day to get all your tasks done and follow up with people. If you are calling back people days later or not at all, word will spread very quickly around the real estate community. It is very important to provide great service as a real estate agent and that is tough to do when you only work part-time.

If you get a reputation as someone who is hard to get a hold of, does not call back, or is too busy to follow up, it will be very hard to shake that reputation. Even if you become a full-time agent and do an amazing job, people will remember the less than par work that you did previously. People remember the poor work people do and they expect people to do good work.

I go over everything it takes to become a real estate agent in my book How to Make it Big as a Real Estate Agent. How to get leads, how to find a broker, how much money you can make, how to make money, how to manage your time, and how to avoid the struggles many agents have. It is available on Amazon as a paperback or Kindle, and it is also on audible as an audiobook!

Can joining a team help?

If you want to be a part-time agent and there is no possible way that you can quit your current job, there are some steps you can take to be more successful. I have a team of ten people who help me run my real estate business, fix and flip business, and REO business. We have some part-time help and many members of my team started out as part-time workers. If you join a team, your team can help cover for you when you have to work your other job. By joining a team, you agree to give up part of your commission to the team so the team is motivated to help you succeed. I think there is a better chance of succeeding as a part-time agent if you can join a team rather than trying to do everything yourself.

You will be doing other tasks than just working as an agent, but it will all be real estate related. You will also have a flexible schedule on most teams that will allow you to drop everything and go show houses if needed.

Does it help with investments?

The best situation to become a part-time real estate agent is when you are a real estate investor. I own 20 long-term rentals and I complete 20 to 30 fix and flips per year. I save money when I buy a home from the MLS and when I sell a home because I do not have to pay a listing agent. Being a part-time agent who invests in real estate is well worth it in my opinion.

If you are only an agent to save money on your own properties, you do not have to worry about having a flexible schedule or working leads. If you are only an agent because you are an investor, being a part-time agent may work out great.

What other options will help part-timers succeed?

Joining a team is one way to succeed as a part-timer. There are some other ways to make a part-time real estate career work. The most important thing to have as a real estate agent is availability. Many people do not want to be on-call all the time, but there are sacrifices you must make for an awesome career. While you may not have to work 30 hours per week as an agent or even 20 hours a week to sell houses, you need to be available most of the time. If a buyer or seller needs to talk to you on a Sunday afternoon or on a Monday morning, you should be available. You may have to show houses on the weekends or in the evenings. Real estate agents make their own schedules and have a lot of freedom, but when a client needs to see a house after hours, an agent should accommodate them.

If you want to be a part-time agent and have a very flexible schedule, you have a much better chance of making it. If you have to work another 9 to 5 job every day, it will be very tough to make a real estate career work. There are some amazing jobs today that can help agents make money and have a flexible schedule. Uber or Lyft are ways agents can make money, but also be able to drop everything to help out a client.

Conclusion

A part-time agent can make it in the real estate industry, but to be successful, part-timers need to join a team until they can go full-time. If you are an investor who just wants to save money on your own investment properties, becoming a part-time agent is a great idea.

Many of my sales come from listing REO and HUD homes for banks and for the government. If you want to become an REO agent, you must be a full-time agent. Banks and HUD need immediate responses on their properties and getting back to them in a day or two will not cut it. I have to do inspections within 24 hours and most tasks in 48 hours. To be successful you need to commit and it is tough to commit to something when you are part-time.

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Source: investfourmore.com