Rental property myths are practically a dime a dozen. When taking into account the current housing market trends and real estate market, rumors can easily fly. Our non-recourse loan lenders are here to dispel some of these myths so that you can be more informed when it comes to rental investment properties. Find out more, and begin your non-recourse loan application with First Western Federal Savings Bank today!
Myth #1: There’s less of a demand for rental properties in 2019.
It’s true that the millennial generation is at or nearing the age of settling down and buying a home. It’s also true that they comprise nearly half of the buyer’s market for 2019. However, rental properties are an absolute must, for several reasons.
To start, there are millions of young adults, such as college students or recent graduates, who are in need of places to rent. The younger generation can’t be overlooked just because millennials are taking up a large portion of the homebuying market.
Secondly, even though millennials are approaching the traditional age of settling in and buying a house, many are grappling to do so. Wracked with student debt and jobs that don’t pay enough to live comfortably in the current economy, it’s very tough to afford a home. Additionally, millennials are more prone to switch careers frequently and move around as a result, instead of being tied down to one property.
Regardless of if more people are buying homes or not, it doesn’t change the fact that rentals are still in high demand. That’s why it pays now to start on a non-recourse loan application and to get ahead of the need for rental properties.
Myth #2: High mortgage rates mean I shouldn’t buy property.
There’s some truth to this myth, because mortgage rates have continued to rise over the past several years. However, this is an indicator by many that now is the time to buy, precisely because rates keep getting higher.
To add on, when higher mortgage rates exist, this discourages a lot of people from entering into the housing market. First-time homebuyers especially are less likely to go for a new place when they could likely save money on renting for another year, versus paying for a down payment and a monthly mortgage.
High mortgage rates are going to unfortunately continue, but no matter what, there will always be people looking to rent. Investing in a rental property through a non-recourse loan is one of the most assured investments, simply because rental properties continue to be in high demand.
Myth #3: If I want to stay in my rental property, I can.
People tend to think of their rental property as a second home for them — it could be especially convenient for vacationing, right?
However, if you have a rental property that you’ve acquired with a non-recourse loan, you cannot stay there. Additionally, your family members cannot stay there either. With a non-recourse loan, you can only rent to people outside of your family, and it cannot be a form of residence for yourself.
That being said, once you complete the terms of the loan and pay it off, the property would become a free and clear asset of your IRA. That means you could potentially re-leverage it with a non-recourse loan to buy more investment property. Or if you are of a mind to do so and over 59 ½ years of age, you could pay the taxes and take a personal distribution of the property so you could live in it once it has been fully distributed to you. If you have further questions about non-recourse loans, contact our lenders at First Western Federal Savings Bank to find the answers you’re looking for.
Myth #4: I can save money by purchasing a fixer-upper.
Considering there are whole TV channels devoted to fixing up old homes and renovating them to perfection, it makes sense why a lot of people are jumping on the DIY bandwagon these days.
If you’re highly experienced in construction and home projects (or have the time, materials, and money to learn), working on a fixer-upper might be a great passion project for you. It might also save you money — though we always advise safety and quality be prioritized over cutting costs.
If those descriptors don’t sound like you, a fixer-upper might cost you the same (or more) than if you had bought a more expensive — but completed — house to be turned into a rental. What’s more, a non-recourse loan cannot be used towards any construction or renovation costs.
However, the rules around self-directed IRAs do not allow the owner of the IRA to do physical work or improvements on the property. Any rehab must be done with hired labor or sub-contractors, not by the physical labor or talents of the IRA owner.
A fixer-upper can be less expensive in certain circumstances. But the truth is very few of us have the time and resources to truly see a profit from fixing up an older home. It’s no lie when they say time is money — fixer-uppers might seem cheaper up front, but the cost and time involved are oftentimes not worth it.
Our non-recourse loan lenders are happy to debunk any other myths that surround rental properties. Get in touch with the lenders at First Western Federal Savings Bank today to get started with your application! We look forward to hearing from you.