Buying an investment property comes with many advantages, here are 7 things to consider to make your investment as successful as possible.
When it comes to buying an investment property, you may not just want to jump at the first property you see. Rather, you want to have a strategy, making sure that your purchase will bring you a healthy return on your investment. After all, there is a good chance you would like to continue building up your portfolio.
Investing can be very rewarding, but it can be challenging, too. So as you make the move to buy your investment property, here are 7 things you may want to consider.
Anyone can be an investor, but there are a couple of characteristics that you should have. For instance, a good investor can be described as someone who is financially stable. First, if you intend to get a traditional mortgage, investment properties usually require around 15% or more for a down payment. Plus there will be inspection costs, routine maintenance, repairs, and so on. Some of these things may even be urgent, such as if a tenant calls to say that the roof is leaking or the air conditioner stopped working. You will need to have the funds in your hands to address these issues.
Next, do you have time to give the proper attention to an investment property? An investment property will require your attention, unless, of course, you have decided to turn it over to a property management team.
As part of your strategy as an investor, you need to decide what type of investment property you will focus on. For instance, are you interested in single-family residential properties? Or how about investing in multi-family residential properties? Or maybe commercial space is more your cup of tea.
Whatever you take a liking to and that fits your strategy and future goals, that’s what you should focus on. And once you know this, you can narrow down your search and find the best deal — that will lead to the best ROI.
Depending on where you are, property taxes can vary, but they are based on the value of a piece of property. You may find a great deal on the purchase of a property but the property taxes may be incredibly high. Or, maybe you find a property that is a little more expensive, but of lower value, resulting in the taxes being lower.
As an investor, it is important to keep this in mind as these taxes are something you will be responsible for every single year. And, since property taxes are based on the value of the home. So, even if you get a good deal — those taxes could be high.
Sometimes friends or siblings like to go in together on an investment property. And sure, it seems like a great deal when you can put your money together, right? Purchase costs, maintenance and repair costs, taxes, and all can be split which means you only have to carry half the burden in the investment. However, you will also only be getting half the profits, too.
If something goes wrong legally, you will also find yourself dealing with the repercussions, whether you were the one who made the mistake or not because you are both responsible.
Before you can invest, you need to consider where you want to invest. Like property taxes, there are a few things that make an area more profitable than others. Dive into the housing market, the rental market, the job market, etc. of the area you would like to invest in. A thriving, growing area is a good sign of future growth. And always keep an ear out for plans within communities that may stimulate growth, such as future entertainment complexes, new locations of major corporations moving to the area, and so on.
If you turn on the TV to a home improvement show any hour of the day, you will likely find someone who is flipping a house. They bought it for a really good price and have decided to add $15k of updates and renovations and then flip it, making tens of thousands or more in profit. The idea of this sounds amazing. The reality, not so much.
Unless you are a contractor and can do renovations at a relatively low cost, you may get yourself in over your head. If you are an investor who is looking for rental property, the last thing you are going to want to have to do is to fix up a property before you can rent it out. Instead, look for a great deal on a future rental that only requires minor repairs to get it tenant-ready.
Finally, consider whether you want to be a landlord or if you would prefer to hire a property management team. The idea of being a landlord always seems like the ideal job – you own rental property, rent it out, and sit back collecting money. Right? Wrong.
There is a lot that goes into managing rental property. And many new landlords tend to get overwhelmed and feel underprepared to handle it. For those who are new to investing and still have a regular full-time job, being a landlord can interfere.
This is why so many investors nurture their relationship with an experienced property management team, such as Real Property Management Evolve. This team of experts will go to work marketing your property, screening tenants, handling lease signings, maintenance and repair, and so much more. And you, as the investor, can continue working on that portfolio of yours – and finding the next great deal.
Congratulations on deciding to buy an investment property. As long as you consider all aspects of the process, you will likely find it to be a very rewarding step for your future.