7 Tips for Buying an Investment Property
Buying an investment property, especially your first investment property, is an exciting and important time.
Some of the world’s wealthiest people made their money in real estate. This makes the major investment you’re about to make seem that much more stressful. But you can experience real estate investment success without the stress overload.
The key is to prepare. Develop the appropriate knowledge you need when buying an investment property before you buy. Planning will prove essential to your success.
Not sure where to begin? This article will discuss seven tips you can use when buying an investment property.
Tip 1: Make Sure Buying An Investment Property Is For You
Property investors often perform their own home repairs. Hiring a professional eats away at your profits. If you’re considering investing for the first time, you’ll want to take this route.
Ask yourself if you’re someone who doesn’t mind this type of hands-on work. If you’re working on a budget with little to no disposable cash and you hate handy work, you might want to reconsider buying an investment property.
Of course, there is a learning curve. Your first investment property will require time to learn the dos and don’ts of the job. Do you think you’re up to the task?
Do you have the spare time to dedicate? Often, investment properties prove akin to a part-time job.
Make sure you know what you’re getting into before you begin.
Tip 2: Conduct Your Own Research
Get your hands on whatever investment materials you can. Study them.
Attend seminars or classes on investing, such as how to select locations, value properties, and how to analyse the rental market.
The more research you do before investing, the greater your chances of success. You’ll make the process easier on yourself if you prepare the right ways for the right property.
When buying an investment property for the first time, think close to home. You know what the economic climate is in your area of residence.
Choose a region that will lend itself to success in the long term. Evaluate the major employers and why people move in and out of your city. Does the future look bright for this area?
If you answered yes, then this is a great place to purchase your first investment property.
Never purchase property based on emotion. Do your research and base your buying decision off of the economic analytics.
- Does this property provide the ROI and gains I need?
- Will the location attract the type of tenants I want?
Tip 3: Reconsider A Real Estate Agent
Working with a real estate agent comes with pros and cons. Most of the time, the cons outweigh the pros.
Real estate agents can help you get a good price for a foreclosure. But these foreclosures show up on the Multiple Service Listing or MLS.
Not only is this information available to you, but it is also available to your competitors. This competition drives up the cost of a deal.
Do your own research. Find motivated sellers. You can negotiate your own deal and get a larger profit.
A real estate wholesaler who knows what they’re doing can also serve as an asset to your investment endeavours. They know how to find awesome deals that they can pass on to you below market value.
Tip 4: Know The State of Your Market
Do you know what will rent? Do you know how much it will go for?
Contact local property managers of properties similar to what you want to invest in. Check classifieds to find out what price these properties rent for.
Look for signs of heavy competition or soft rental markets. You’ll want to find properties elsewhere if you do. Signs include owners offering incentives like free rent.
Adopt a hands-on approach to research. Call the numbers in rental ads, talk to landlords, seek out properties on your own. Know what to expect for income before you invest.
Tip 5: Secure Financing
Before you invest, you need to familiarize yourself with all of your costs. The biggest drain on your funds is a mortgage down payment. In most cases, your downpayment will equal about 20% of the total cost.
Rental units sometimes experience higher mortgage interest rates. You can soften this blow by addressing any credit issues you have before investing.
Knowing your costs will help you calculate your ROI. Knowing your ROI helps you decide whether or not invest in a property.
Tip 6: Secure Equity
Buying an investment property at market value is a mistake.
You should secure the home at up to a 20% discount. This puts that equity in your hands as future profit or a safeguard against premature liquidation.
You’re in control of your own funds. You’re never obligated to close on a deal until you know the investment is worth it.
If you work with an agent or wholesaler, ask to see all of their valuation calculations. Make your own valuations known.
Tip 7: Proceed With Caution, But Not Too Much Caution
Do not act in a hurry when you set out to buy your first investment property. Do your research. Take the necessary time to learn and grow as an investor.
Do not become disheartened if you’re not a spectacular success overnight. Keep your head up and keep going.
At the same time, make sure you take actionable steps and do not procrastinate.
Do not back yourself into a corner. Do not let fear dictate your action or inaction when it comes to investing.
Find the sweet spot in the middle of these two extremes. If you do, you’ll make a decision you believe in. The best way to learn where this happy medium lies is to get your hands dirty.
Buying Your First Investment Property
Like most things in life, keep realistic expectations of your investment. Your rental property will not see massive ROI right off the bat. This is common, and it is okay.
Yet this is why picking the right property remains crucial. Use these tips when buying an investment property to bolster your chances of success.