As evidenced by some of the wealthiest people, real estate can be quite lucrative, but there are a lot of things to consider when buying your first investment property, and each has their factors you must investigate. Investment properties will always be risky, but if you address each of these issues, you will be more likely to succeed. In this post, we hope to give you an idea of the things involved in the process.
Here are some measures to consider:
- Are investment properties right for you?
- Who will be on my investment team?
- Decide what and where do you want to invest.
- Where will you find funding?
- Is property management right for you?
Is Purchasing an Investment Property Right for You?
Like any investment, you should be well-versed and well informed before you devote massive amounts of time, energy, and money. As investing is always a risky business educating and being honest with yourself is essential.
- Liability. Frivolous lawsuits and the concept of translating “emotional distress” into a financial quantity has made this a real concern for every business owner. You must be able to be sure that your building is always up to code.
- Liquidity. Be sure you have the money, and investment properties will tie your money up for months or years.
- Vacancy. Though a rental can provide substantial income, it’s not likely to be steady. Vacancy means less or no incoming money to pay your monthly bills. If you’re able to save and keep an emergency fund, you should be able to weather empty units with little trouble. If not, you will be struggling to pay out of your pocket.
- Capital. Investment properties will require a significant amount of money. The standard is 20% down plus closing costs and a large number of reserves.
Assembling Your Team
You can’t expect to do this on your own or with another inexperienced investor. It would be best if you surrounded yourself with other successful entrepreneurs and professionals who have experience dealing with investors.
You’ll need a:
- Real Estate Agent
- Property Manager
- Mortgage Broker
- Real Estate Attorney
- Insurance Agent
- Home Inspector
- An Appraiser
- Contractor and Handyman
What to Buy and Where?
Do you want a condo? A single-family home? Or a multi-family home? The type of property you buy will determine many things. It all depends on your position and abilities. As you are a first-time investor, a building with five units or more is not a good fit for you.
When deciding on the location, you’ll want to tailor the area toward the type of renter you want. Price is one of the first factors, but you should also look into crime, schools, public transportation, shopping and amenities, and parking. Study the market and pick the location carefully.
Your best option is to pay cash, but we aren’t all so lucky to have that kind of money on hand. So, polish up your business plan and qualifications because investment property loans are considered a higher risk to lend to compared to owner-occupied properties. You will need at least 20-25% down along with six months’ worth of future payments put away as mortgage insurance isn’t available for rental properties.
There are many options for financing from banks to home equity loans. Whatever you choose, be sure you are preapproved for a mortgage before you start looking. Once you have found founding and property, it can take anywhere from one to two months, much less if you are paying cash.
Is Property Management Right for you?
You’ve done your research, assembled your team, found the perfect property, secured funding, and now you’re ready to go! The next step, and the longest step, is being a landlord. Investing is one thing, but being a landlord is a different set of skills.
The good news is you can hire a property management company. They will take care of marketing to fill vacancies, conduct background, and credit checks, collect rent, maintain the property, deal with tenants, and pay bills.
Hiring a property manager is also a great route if you plan to own multiple properties and well worth the money.
You can also learn to be your property manager. If you want to make a career out of this, it is well worthwhile to get the experience for yourself.
Do Your Research and Put in the Time
This was just an overview of the investment property process. There are so many details and things to consider and learn. Be sure you have a thorough understanding of the ins and outs of investing in property. Be ready to make mistakes and learn from them as well. Investing in properties requires constant vigilance and dedication, but if you’re the right person, you can turn it into a career.
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