How to find the perfect investment property in Portland Oregon
Portland is one of the top two most relocated-to cities in America and it’s also the most affordable city on the west coast. So no it’s no wonder why the Portland real estate market is so hot right now (yes, maybe even hotter than Hansel from Zoolander).
So, how do you find the perfect investment property in Portland, Oregon? This article will give you everything you need to know, and for extra measure, may even get a little TMI in places as well.
What’s Your Property Investment Goal?
Using real estate as an investment vehicle is a very lucrative way to build your Investment Portfolio for retirement. The first step when investing in real estate in Portland, is to figure out what your goal is. Here are a few questions to get you started:
- Are you looking to do a 1031 exchange or is this a new purchase?
- Are you looking to use real estate as an investment vehicle to hold, flip, or rent?
- Are you looking for a short-term rental for two to three years before selling the house?
- Do you need something to buy and move into for the next 2-3 years before turning a profit or using your equity?
- Are you looking to buy a condo, townhome, single family, multi-unit, duplex, triplex, etc?
- What about location? You might want to buy a rental out by all the tech giants on the West Side of town in Beaverton-hillsboro, Tigard, Hillsboro, etc. Maybe you want to be more in the up-and-coming hot neighborhoods, like Mississippi, Alberta, Irvington, Hawthorne, etc.
Whatever it is you’d like to do, get the picture as clear as day and down on paper. Writing down your goals will save you lots of time and money.
Do the Numbers Make Sense?
One useful tool that every real estate investor should have in their arsenal is the Capitalization Rate or Cap Rate for short. The Cap Rate will give you a general idea of the property value from one potential investment property to the next. To calculate it, you need to divide the Net Operating Income (NOI) by the property’s current market value.
NOI is any income the property should bring in minus operating costs. The market value of the home is determined by your appraisal. To get a well-rounded idea of the market value, it’s good to have an appraiser AND a real estate agent give you a price. The appraiser will give you a very technical view, which is what you need for the above calculation.
Another key element when deciding on an investment property is the Gross Rent Multiplier. This will give you an idea of how long it will take for the property to pay itself off. It’s the gross rent before any expenses (insurance, taxes, utilities, etc.) have been taken out. The lower the GRM, the less time it will take. Anywhere from 4-7 is a good area to aim with the GRM.
Another stage of your due diligence is to track the rent in the area and costs of the house for at least two years before. This will give you a holistic view of the property.
Once all of your numbers are in order, you’ll know if the investment is sound or not so sound.
Learn More: ADU’s in Portland – What you need to know
Property Management in Portland
Right, so you’ve got the house and you want to rent it out. How are you going to manage it? Will you get a management company or manage it yourself?
Rental management is hard. You’ll never know how much of your time a place can take up until you’ve been a landlord without a management company. It’s a lot of work. If your tenants need anything, they’re coming to you. You have to charge and follow-up on rent collection. If something breaks, you have to either fix it or find a contractor who can.
Management companies tend to cost 7-12% of your monthly rent. In Portland, you’re usually looking at closer to 7%. Which, if you ask us, is a steal. Your energy may very well be spent elsewhere. A good management company will take a lot of stress out of the equation.
If you need help finding a good company, we work with some of the best property management companies on the planet and have worked with them for years. They operate at a very high level, taking extremely good care of the property and our clients.
Learn More: Understanding Price per Square Foot
Lending Options in Portland, Oregon
Contrary to popular belief, there are a lot of different options for investment lending. Any property that is 4 units or lower can be put onto a Primary Residential home loan. Any property that’s 5 units or higher will need to be a commercial loan. But there’s also creative financing.
Most people think that you need 25% down when purchasing a secondary property that is not your primary residence. However, there are options out there that allow you to put as little as 15% down.
You can do a Home Equity Line of Credit HELOC (this takes a lot of due diligence) which gives you credit against your equity without having to refinance, but it does mean borrowing against the value of your home. HELOCs often have a lower rate than home equity loans, including cash-out refinance loans, but their rate can go up or down based on economy and other factors. This will affect your monthly payment and you may not be able to get an accurate read on how much it’ll cost you.
The tricky thing about HELOCs is that they can, and often do, result in what’s called a “Balloon Payment.” The balloon payment comes about at the end of your loan term (typically 3-7 years). So, you pay only interest for 3-7 years and then the mortgage provider wants you to pay the entire principal balance as one lump sum at the end of your term. The other thing about this form of funding is that you don’t build equity in the house because you’re only paying off interest. This gets a lot of people but you can handle it if you are smart about it and do your due diligence.
Cash-out refinance converts your existing mortgage into a new mortgage. Cash-out refinances can only be used if you have equity in your house. They also tend to extend the time of your loan back to 30 years. So, it’s all dependent on how long you want to own the property and what the interest rates are looking like at the time. They also come with initiation fees.
These are just a couple of the more popular options. We work with some of the best, local lenders around Portland. We can maximize your value and get you a great interest rate and talk to you about how much money down you will need for each different type of scenario. Contact us if you’re looking for some of the best financing options in Portland, Oregon.
Looking to Buy an Investment Property in Portland?
We get so many people calling us about buying investment properties in Portland and we absolutely love it.
If you’re thinking about buying a rental property in Portland or Southwest Washington, make sure you give us a call, shoot us a text, or send us an email. However you want to get a hold of us, we got your back when investing in the Portland real estate market.
Need help moving to Portland OR?
If you’re thinking about moving to Portland OR, we can help you find your perfect home in the right neighborhood for you. If you have questions about moving to Portland, feel free to call, text, or email Jackson Wilkey or Jesse Dau.
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