First-time buying as an investment?

On Saturday, I went with my partner to look at a condo in Kapahulu. For more than a year, he’s been talking about wanting to buy real estate in Honolulu instead of renting, and feels this could be the one.

It meets all of his requirements: His giant truck fits in the parking garage (barely), you can have an in-unit washer/dryer and pets are allowed.

The catch? The unit needs to be gutted and the location isn’t exactly glamorous. He’s a handy guy, so a renovation isn’t an issue and his thought is that it could be an investment as a rental property.

But I wondered if, as a first-time home buyer with a modest salary, he would really be able to really get the return he’s looking for? So I turned to realtor Bonnie Ishii Coen of Prudential Locations LLC to answer some of my questions.

What do you need to consider as a first-time buyer of an investment property? If you secure a great interest rate, are there restrictions? Can you rent it after the renovation or do you have to live in it?

“Each CPA and lender will look at it a little bit differently,” says Coen. “If you’re an investor going into a purchase of a first property, you’re going to have to put down a larger down payment than if you’re an owner-occupant. For a lower down payment as an owner-occupant, you’re getting the advantage of a lower interest rate.  The bank is giving this to you with the intent that this is your home. So if you plan to rent it out soon after and you assumed an owner-occupant loan, you could be in violation of that particular bank’s guidelines.” She pointed out some owner-occupant loan requirements include a length of time you must live in it, such as a year or more.

What about the neighborhood? Does it make a difference?

Of course. The old adage still applies: “Location, location, location,” says Coen. “Whenever anyone asks me about what the best investment is, I say buy the best location you can. You can always fix up the property, but the location is the most important.”

What other advice would you give?

“For first-time home buyers, I prefer that people go in with the mindset that it is their home. This is the first big payment they’ll be making, so I would rather them think that this is their home versus an investment. If it turns into an investment, that’s fine,” says Coen. “It’s really tough when the first purchase you make is strictly as an investment.” Are some successful? Sure, but for most, you have to be willing to live in it if necessary.

Last thoughts?

“I still think it’s a fantastic time for anyone who is renting to purchase because the money you’re spending on rent is paying somebody’s else mortgage. You should always be working toward your own personal portfolio of property. Home ownership is the best place to start. The interest rates are just fabulous right now.”