As a financial advisor, Marc Bautis knows the proper ways to identify what price of home you should buy, budget for a down payment, and invest in real estate.
Today I’m joined by financial advisor and fiduciary Marc Bautis. Marc’s job is to help people make the best decisions with their money. What are some of his recommendations when it comes to real estate and investing?
How do you figure out what price of home you should buy?
Everyone’s situation is different, but you should start by examining what you’re going to spend per month on the home. Try allocating 30% of your gross income to your monthly housing cost. This monthly housing cost will include your mortgage, property tax, insurance, and any condo and association fees. If you have any other types of debts (student loans, credit cards, car payments, etc.), you might want to allocate a little bit less than 30%. If it’s not that much, though, you can shoot for over 30%.
How should people budget for a down payment?
It’s important to figure out where your money is going each month, whether it’s for rent, a current home you’re making payments on, food, or transportation. There are probably some other things that you save for as well, such as retirement, your children’s education, or some liquid savings for an emergency fund. You can’t make that down payment decision without looking at these items. After figuring out where your money is going, see what the impact is if you allocate another down payment or what that down payment would be and what impact it would make. Is it going to wipe out your liquid savings or affect your savings for retirement?
What constitutes a good real estate investment?
When you invest in real estate, there are four ways to make money: 1) price appreciation on the property; 2) cash flow (if the rent you’re collecting is greater than your expenses, it’s positive); 3) amortization; 4) tax benefits, in which you’re allowed to depreciate your investment property over time which will give you a year to year tax benefit. When you’re looking for that optimal property, focus on the cash flow aspect. Have a Realtor look at the property and get the market value to determine what the rent could be for that property. Dig deeper into what the expenses are and figure out if it’s going to produce a positive cash flow or result in you having to dig into your savings account. From there, you can look at different ratios like cap rate or cash-on-cash return so you can compare different properties and see which one is the better investment. Different areas will have different cap rates. Financial numbers aren’t the only thing that go into the decision of whether to buy a property, but they are a large piece of it.
How do you think the election will affect interest rates?
Interest rates will probably go up. They will likely be held in check in the weeks leading up to the election, but they’ll creep up no matter who takes office. This will likely happen once in December and probably a couple times in 2017.
If you have any more questions for me, please feel free to give me a call or send me an email. I look forward to hearing from you!