Investment buyers need to be familiar with the laws pertaining to rentals in Key West. Key West has transient and non-transient rentals.
In order to rent nightly you would need to apply and qualify for a transient license.
If you are a buyer that is planning on occupying the property often you will need to assure that the property you are interested in purchasing has a transient license. This way you can have the best opportunity to have the highest income.
If the property cannot be rental nightly you will need to obtain a non-transient license and will only be able to rent the property for 30 days at a time.
A transient license is the best way to maximize your income. You will have the ability to rent by the night, stay at your property as well as receive higher income on the property. If your plans were to occupy the property during the months of January, February and March you would have the greater potential to increase your income with a transient property.
If you find a property that you absolutely love and it is a non-transient property, the potential of you being able to rent the property will be primarily the months of January, February and March. If you do not plan on occupying a non-transient rental in January, February, and March then the property would be a perfect property for you.
One thing to consider for a non-transient rental property is that a potential vacation rental guest would be more attracted to a property located in the downtown/old town area. If you find a property and you are able to answer 2 of these 3 questions you are definitely looking at good rental product.
If you do not plan on occupying the property at all then another option for you is to purchase a non-transient property and rent the property long term (6 months or more). You can purchase a non-transient rental for a good purchase price to where you could receive a better return on your investment (ROI). You would be able to rent the property year round without the concerns of the limitations you have with a vacation rental.
The market for long term rentals in Key West is at a high demand. There currently is a shortage of properties in comparison with the residents whom are seeking rentals. Residents are finding it very difficult to find a long term rental. If you choose to buy a long term rental, you will be able to rent at a high rental price and it will be easy to rent fairly quickly.
There is a lot to know when it comes to financing your new property. You will need to be pre-qualified for a mortgage, make some important financing decisions and of course, eventually choose a lender.
There is a reason we put this section first: the first step to buying a house or condo in Key West should be finding out how much your bank is willing to lend you. When you pre-qualify for a mortgage, your lender will look at your income, your debts and your down payment. It’s important to take the pre-qualification to the next level before you fall in love with a house by getting pre-approved for a mortgage. A mortgage pre-approval will be in writing (generally valid for 90 or 120 days) and will require you to prove your income and credit history. Pre-approvals will include an interest rate guarantee.
Of course a pre-approval is not a guarantee that a lender will lend you a certain amount of money for any home. Lenders want to know that the home they are purchasing with you (by lending you the money) is worth what you paid. In Key West, banks generally order independent appraisals of a home before they lend the mortgage money. Getting pre-approved will ensure that you know how much mortgage you qualify for, which in turn will help you know what price range of homes you should be targeting in your search. It allows you to focus your house hunting efforts, and eliminates the risk and uncertainty of financing once you find your perfect home.
Mortgages can seem intimidating, especially for the first-time buyer. Once you’ve qualified for a mortgage, there are some basic decisions you will need to make before you take possession of your house or condo: Mortgage term, amortization, interest rate and type of mortgage. Read on to find out what all of that means and use our handy Mortgage Calculator to estimate what your payments would be.
The mortgage term and amortization period affect the amount of money you can borrow (and thus the price of the home you can buy), and dictate how much your monthly payment will be
Most mortgage payments consist of two parts: principal and interest. This is known as a blended mortgage payment. Each payment reduces the balance owed on the mortgage by the portion of the payment that is credited to the principal. Over time, the proportion of your payment that reduces the principal balance will increase. The faster you can pay down the remaining balance, the less total interest you’ll pay. There are many ways you can pay down your mortgage faster, from accelerating your payments (e.g. paying biweekly instead of twice a month, for 26 payments per year instead of 24) to making lump sum payments on your mortgage; your lender can help define the right strategy for you.
The interest rate is one of the biggest contributing factors to how much you end up paying for your home, both on a monthly basis and over the life of your mortgage.
Interest is the cost of borrowing money. Interest rates fluctuate with the economy. The interest rate you commit yourself to at the beginning of the term can have a significant effect on the amount you pay each month for your mortgage. Interest Rates are unique to every situation. The two basic types of interest rates are fixed rate and ARM (adjustable rate mortgage)
Conventional loans are mortgage loans offered by non-government sponsored lenders. These loan types include:
Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Both of these stock-holding companies buy mortgage loans from lending institutions and secure them for resale to the investment community. Every year, form October to October, Fannie Mae and Freddie Mac establish limits on what constitutes a conforming loan in a mean home price.
With a fixed rate mortgage, the interest rate does not change for the term of the loan, so the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be.
Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal.
A 30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate.
A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.
FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.
FHA loans are an attractive option, especially for first-time homeowners:
Designed to offer long-term financing to American veterans, VA mortgage loans are issued by federally qualified lenders and are guaranteed by the U.S. Veterans Administration. The VA determines eligibility and issues a certificate to qualifying applicants to submit to their mortgage lender of choice. It is generally easier to qualify for a VA loan than conventional loans.
Here's how it works:
There are lots of kinds of lenders and mortgages out there. It’s a good idea to go to at least 2 lenders:
It is important to note that not all of these decisions have to be made before you start looking for a home; the crucial step is getting a pre-approval from a lender—then you are ready to start the search! Details regarding term, rate and even which lender you use can be decided—and changed—after the actual purchase, all the way up until reasonably close to your closing date (the date you take possession of your new place). However, the more you understand about your options, the better prepared you will be when that magical day comes.
Let the fun begin! Whether you’re searching online, hitting open houses or searching with a REALTORS®, hunting for your dream house or condo is both a science and an art. Here’s what’s involved:
Knowing what you need and want in your home is critical. What are your must-haves, your nice-to-haves, and your no-way-absolutely-nots? How many bedrooms do you need? What kind of outdoor space do you want? What about counter-tops, appliances and floors? You can’t get what you want if you don’t know what you want. Of course location will be a big decision – what neighborhood makes you feel at home?
Almost everyone needs to compromise on something and it usually comes down to 4 things: size, finishes, location and price. What’s most important to you? Would you rather live in a bigger house or closer to downtown? Are you OK spending more money for a renovated house or could you buy a less expensive house and do the renovations yourself? Would you consider living on a busy street to affordably be in a better neighborhood with access to better schools?
You are not alone: a good percentage of people search for their home online. While there are endless real estate websites out there, here are the ones you should consider:
Realtor.com is the website owned by the real estate association. It pulls available properties for sale directly from the system that agents use, the MLS (multiple listing service).
This is your opportunity to get a feel for the Key West areas, refine your House Hunting wish list, and ask questions. While a wish list seems kind of scientific and is a useful tool in deciding which properties to visit, the truth of the matter is that most people walk into their perfect home and just feel it. Of course it helps when it satisfies your needs and wants too, but do not underestimate the power of ‘just knowing’.
You can visit homes for sale in real life with your real estate agent or by attending an open house. Keep in mind that not all properties will have open houses, so working with a real estate agent you trust is the only way to guarantee that you will be able to see the houses or condos you want to see (and on your schedule!).
Congrats! Your house hunting efforts have paid off and you have found the right home for you: it satisfies your wants/needs, it’s in your price range, and it feels right. The offer is both exciting and nerve-wracking. We begin by drafting an AS IS Residential Contract for Sale and Purchase. This is a legally binding document which contains everything from the price you are prepared to pay, to the inclusions you want (washer/dryer, big screen TV), to your ideal closing date (the date you take possession), to contingencies that need to be met for the deal to go through. Once you have submitted your offer, the seller can accept it, reject it or make a counter offer. During these back-and-forth negotiations, you may need to compromise on small things but a good REALTOR® will work hard to get you what you want. And if you are in a bidding war, make sure you know the facts about Bidding Wars and How to Win in Multiple Offers.
Contingencies are requirements within the As IS Residential Contract for Sale and Purchase that must be met for the deal to go through. In your offer, you may have included a financing contingency, or an appraisal contingency, or a home inspection. And of course, you will need to submit a deposit–an amount up to 5%-10% of the purchase price, which is held in trust until close. Once the contingencies have been met, the agreement is firm and now it is just a matter of waiting for your closing date. And of course, packing!
You are almost a homeowner! Closing is the point at which the ownership and possession of the property is transferred from the seller to you. It takes place after all legal and financial obligations have been met. Closing the purchase will be a team effort: in addition to yourself, your lawyer and your lender will all be involved in helping close the deal. Click here to find out how much your Closing Costs will be.
If you find yourself in a bidding war, there are a number of strategies that can help you come out on top:
If you want the house, accept this fact and plan to make yourself as flexible to their demands as possible. If you want to win a bidding war, you must accept that you are not generally in a position of power.
For the most part, the highest price usually wins the bidding war. Reality check: the asking price on the MLS listing is almost irrelevant. How much a property is worth doesn’t really depend on how much the Seller wants to get for it, or how much money the Seller has put into the house, or how much the REALTOR® thinks they can get for it; the only thing that matters is how much someone is willing to pay for it. Remember, the bank will not lend more than the value of the appraisal.
Have a budget and stick to it. The last thing you want to do is over-pay for a property – your lender (and let’s face-it, the co-owner of your house) will want to ensure that you have paid a fair price for the property. Lenders require property appraisals before they give a mortgage – meaning that they want to approve you for X amount of money for a particular address – especially if you have paid more than the asking price. If your life circumstances change and you suddenly need to sell in the short-term, having paid fair market value will go a long way to reducing any potential losses.
It’s easier to digest $23 a month than $5,000. As you work through your offer price options, make sure to do the math, factoring in how a higher price will affect you on a month-to-month basis. We’ve lost bidding wars by a mere $500 on a $350,000 property. Ouch.
Generally there are no second chances in a bidding war – they are not the usual back and forth negotiations. Your first offer is often your last, so make it a good one. Go in with your strongest offer.
I know, easier said than done, but the reality of every bidding war is that there is only one winner. And yes, outcomes are hard to predict and the only way you are ‘guaranteed’ to win an offer is to over-pay: offer the Seller of a $500,000 house $1,000,000 and you’ll be guaranteed to win.
During contingencies (e.g. financing or home inspection). When a Seller accepts a conditional offer, they take on the risk that a Buyer will not get financing, or will decide that the leaky basement discovered during the inspection is too much to deal with. Usually by the time that happens, the Seller has lost all the other potential Buyers, and has to start the sale process again. Put yourself in their shoes–would you take that risk? The best way to reduce the Seller’s risk is to enter a bidding war with no contingencies, or as few as possible. More on that next.
If you were planning on having a financing condition in your offer, talk to your bank and get their OK before you make the offer. If you were planning on doing a home inspection, then it is best to pay the $500 out of your own pocket and have it done before the offer. That way you can meet the Seller’s desires to have a firm or no-condition offer and still protect your interests
Real estate deals become legally binding when a deposit check is provided in trust to the Listing brokerage– an amount usually at least 5%-10% of the price of the property (which then forms part of your down payment). Having a certified check ready on the day of offer is yet another way to reduce the Seller’s risks and increase your chances of winning the house.
From choosing your timing to the actual offer presentation, there are lots of ways to play the bidding war game. Each situation is different and an experienced and strategic REALTOR® can make the difference between getting the house of your dreams and crying in your beer.
Bidding wars are a stressful reality of the real estate market, but with the right knowledge and partners, you can come out on top. Knowing the strategies that can help you win a bidding war will go a long way to getting you the house you want
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