Back to Basics: Making 2025 Your Year to Buy Real Estate
It was an awesome meetup this month! Our Back to Basics: Making 2025 Your Year to Buy Real Estate was a great success! Our panel featured myself, Alyssa Bouthot, and Cyndi Veroneau.
Alysssa Bouthot is a broker & investor with over 15 years of experience in real estate. Alyssa currently runs 1820 Collection, a series of boutique Airbnbs (including a tiny house!) and works as a broker with me at Portside Real Estate Group.
Cyndi Veroneau is a phenomenal lender with over a decade of experience. In addition to referring all our clients to Cyndi, Alyssa & I have also used her multiple times personally, so we know first hand how amazing she is! Cyndi has an incredible ability to put people at ease (not an easy thing to do when discussing your personal finances). Over 30% of her business is working with single women, a figure she hopes to grow! Cyndi’s ability to help her clients build a roadmap for their finances helps them to feel empowered and knowledgeable throughout the financing process.
Lending overview
There are a wide variety of loans available and the key is to determine your financial goals and resources available. There are two main loan categories available to investors; residential and commercial. Residential loans are for people who are occupying their properties, second homes, and some investment properties. Residential loans primarily look at the borrower and their ability to pay (think debt to income ratio, income requirements, credit score, etc.). Residential products have options with as little as 5% down payment requirements. Commercial loans are strictly for investments (large scale multi-units, offices, industrial spaces, etc.). Commercial loans focus primarily on the asset and its cash flow; while you will be asked to fill out a basic personal financial statement, your debt to income ratio, etc. are generally not factors in the process. Commercial loans almost always require 20-25% as a down payment. Residential lenders only do residential and commercial lenders only do commercial, so it’s good to have relationships with both! If you need recommendations or an email intro, I’m always happy to link you with my go to people.
Here are some tips to consider:
If you are a standard W2 employee, your situation will be fairly straightforward in residential lending. If you are self-employed and thinking of purchasing real estate in 2025, I highly recommend you consult a lender prior to filing your taxes. Many self-employed folks write off a lot of their income, which can impact your debt to income ratio and make it hard to qualify for a loan.
Review your credit report with a lender during the pre-qualification process. The higher your score, the better your rate. Credit reports frequently have errors or may not have yet caught up to debt that has been paid; not catching that and having it removed can cost you money (or impact your ability to qualify for a loan).
Sign up for Cyndi’s class next week; Homebuying in 2025: Preparing Your Finances for Successful Home Ownership.
Investing Overview
The key to being a real estate investor is to take an honest look at your life and, as cheesy as it sounds, your why. Why are you investing? Is it to make some money right now to help fund your life? Is it for a long term goal like income in retirement or having an asset to help pay for kids college? Maybe you want a second home and will rent it out to offset the costs, so this is really about quality of life. Answering these questions can help you figure out if you are looking for a short term rental (more cash now but also more work/less flexibility) vs. a long term investment (which won’t make a ton of money now but will pay off down the road).
The second question to ask yourself is what do I have available to give to this? What are my resources, both in time and money, that are available to me today? What will those be in a year or in 5 years? How realistic is it for you to run out or coordinate emergency repairs at the drop of a hat? For those with time, being more hands on and available to manage your own properties may make more sense. For those that have money, you can consider a property that might need more work to do some value add, or you may have more to put as a down payment to create more cash flow (perhaps to pay for a property manager and be totally hands off).
Tips to consider:
The biggest tip I have when someone asks me about what type of investor they should be (after answering those questions) is tune out the noise. If you read any articles, listen to podcasts, sign up for newsletters, they will all tell you there is a certain way you should do it and you have to do it that way (and, frequently, if you don’t that you’re “wrong” or not as smart). It irritates me to no end. The only thing that is the right thing to do is what is truly best for you. In my opinion, there is no hard and fast rule, only guidelines that can help you determine the best type of investing for you. Both Alyssa & I shared that we didn’t have a set metric for if it’s a “good” investment. There are so many factors to consider, that it really requires a holistic overview of your situation and goals.
Understand a simple profit and loss. The key here is simple. Similar to above, it is very easy for people to get into the weeds and experience analysis paralysis, or to feel they have to overcomplicate something. For most investors, a very simple understanding of what goes in, what goes out, and what’s left over, is more than sufficient. Once your bills are paid, what is left? What do you need to be saving for capital repairs? Are there opportunities to optimize (either by increasing prices or minimizing expenses)? Residential loans won’t look at the P&L, however a commercial loan will, so you will want to make sure you have the debt service coverage ratio and the cap rate, along with a few other metrics in there. Yes, you can get into the weeds on ROI, appreciation, etc. but if you are just starting out, don’t stress about these; usually they aren’t the most important factor at the beginning.
Property Management Overview
By far, the factor I hear people are most intimidated by when thinking about real estate investing is being a Landlord. I get it, when I started out I was a social worker and frankly most experiences I had with landlords through my clients were terrible. While I find most landlords (at least the ones I know) are good people trying to do good things, a few bad apples can really ruin the bunch and there is a reason people are so wary to become one. So, how does one find a good tenant? And, how do you ensure a good relationship where you can be one of the good guys? I’m happy to say that (as far as I know), we have great relationships with most of our tenants; they know we work hard and our goal is to make sure we can pay the bills of the building, not make money off them. We work hard to have great communication and be available to our tenants; basically, we try to be good humans and be reasonable with folks and usually that is reciprocated. Many times I have had a tenant tell me we are one of the first good landlords they have had and it reminds me that we need more people getting into this field who can do good by their tenants and help shift the perception.
So, how does one find a great tenant and, most importantly, how do we deal with problems that arise? The key is in being proactive.
When looking for a tenant, take your time and make sure you are properly vetting someone. Complete background checks, check resources, ask for proof of income and credit score. I find it’s important to look at the factors and, if something is off, ask why. For example, many folks have student loans and medical debt, in my opinion those are not indicative of someone’s ability to pay and I don’t deny someone based on the score if it is low due to those factors (consumer debt, like high credit card balances, is a different matter). If someone doesn’t have a high income, maybe they have a co-signer or are getting a raise soon, or have a side hustle not accounted for (the conventional wisdom of your income being 3x your rent is, in my opinion, seriously outdated). If they have a criminal history, is it marijuana possession or something serious like domestic violence or assault? I do see folks with drug histories who are now in recovery and, again, I don’t personally feel like that is a reason to disqualify someone.
Once you’ve found the right tenant, have the right lease. The State of Maine has a standard lease that is pretty thorough, I always recommend you consult with an attorney to see what you should add. I also include a very clear addendum that spells out how people can get their deposit back so there is no ambiguity (I tell people I always want to give 100% back and make it very easy for them to meet the standards we have to have it returned in full!). All leases, in my opinion, should have not only a renters insurance requirement, but a requirement that you have a copy of the policy and are named as an additional insured. If you’d like to learn more about my non-negotiables for leases, reach out and I’m happy to share.
What to do when something isn’t going well? First, communicate. In my experience, the vast majority of the time, tenants have run into a hard situation and will work with you to make a plan, execute the plan, and there are no future issues. I try to be human first, business person second. People fall on hard times and, while they need a plan to get caught up, I’m not interested in making things harder for them, especially if there is a path forward to make it right. If a situation has escalated beyond salvageable, then that is where the strong lease comes in. Work with a local attorney to issue a notice to quit or any other formal proceedings. I’m happy to say that I have never actually been through the eviction process (and I hope this trend continues!). Generally I find if there is not a path forward, both parties can come to an agreement for that tenant to transition to a better situation without involving the courts.
So, what now? If you are buying in 2025, here are your action steps (in order!):
Book a meeting with Cyndi to go over your finances, what you qualify for, and make a road map for purchasing an investment property (whether it’s in 2025 or not, being proactive early is key).
Understand a basic profit and loss. I’m always happy to share mine, just let me know!
Build your network - make sure you have joined our Facebook group and stay tuned for some extra ways our members can share resources. When thinking about buying, you need (at minimum) a lender, realtor, title company, inspector, insurance broker, property manager (if you don’t intend to self manage). Start asking for referrals and making connections - in this profession we love getting coffees with clients, so ask some people out (you can reach out to me here if you want to get something on the books, or just text me!).
Most importantly, just do something. It can be intimidating, but once you get out there and start making moves, you’ll see it’s really not rocket science.