The Ultimate Guide to Buying Your First Investment Property
Real estate investing has made many people wealthy, but, like other businesses, it’s not without risk. Investing in properties isn’t a “get rich quick scheme.”
Instead, it’s a long term investment and can provide income for decades. With any investment, it’s important to do your research and know what you are diving into.
Fortunately, real estate is seen as a more stable investment than a vehicle, for example; especially in places like New York, where collisions are frequent and you may need the help of car accident lawyers in the Bronx at some point to recover damages.
Before investing thousands of dollars, you need to understand what makes a great real estate investment. You want to take measures to ensure you see a profit on your investment and don’t end up with a loss.
If you’re thinking of purchasing an investment property, check out our handy guide to help you through the process.
Be Ready to Invest
Investing in real estate is a big decision, and it’s not for everyone. You don’t have to be wealthy to own rental property, but you do need to be well versed in your own finances before you invest.
Take a look at your finances and lifestyle to see if you are ready to invest. Don’t let your emotions get in the way.
Think of real estate investment as a business decision. It’s important to get the lowest price you can, so don’t rush in without negotiating. The lower the price you pay, the better your chances for earning a profit from the property.
Have a Plan
You want to do your research before investing in real estate. If your home is empty, you should consider having a company like Global Guardians take care of the security of your home for the time being. Make sure the property is in a location to attract the type of renter or buyer you’re looking for.
Rather than considering what type of property you like or dislike, consider the financial pros and cons. Lack of planning is one of the biggest reasons investors lose money in real estate.
Take time to educate yourself. Talk to other experienced investors and read real estate books and blogs. Take some time to learn how others are using real estate investing to build wealth.
Pay Down Debt
Big investors often carry debt in their investment portfolios, but the average investor should avoid excess debt. If you carry heavy student loan or credit card debt, it may not be the right time to invest in property.
In this case, you should work on reducing your debt. You want to put yourself in a good financial position before taking on additional debt.
Securing a Down Payment
Typically, you will need a 20% down payment for investment properties. These types of properties have more stringent loan approval requirements than owner-occupied properties.
Be sure to consider the renovation expenses before making a down payment. Most investors will go through a bank to secure a loan, but there are alternatives for buying investment properties including multi family homes.
Calculate Expenses and Profits
It’s better to be prepared if you are considering investing in real estate. Consider the money you have and what you need to borrow before jumping into a big investment.
Consider how much it will cost to buy and renovate the property. Keep operation costs in mind.
Other costs may include insurance, homeowners’ association fees, monthly expenses, property taxes, and more.
Consider a Low-Cost Investment Property
Even if you have the cash for a larger investment, it’s a good idea to start with a property in the low to mid-range price bracket. You will likely have to spend money renovating the property before selling it or renting it out.
It’s tempting to buy a fixer-upper that you can buy at a bargain price and flip, but this is not a good idea for your first investment property. These homes usually need major renovation, and those costs add up fast.
Unless you are a pro at large-scale home improvement, it’s better to look for a property that’s below market rate and needs minimal repairs.
Since it’s your first real estate investment, the goal is to stay within the safe zone. That way, if you don’t reach the profits you expect, you won’t risk losing too much on your first-time investment.
Location Matters
If you are looking for a profitable rental property, you must consider the location. Look for neighborhoods with low property taxes, good schools, a low crime rate, and plenty of amenities like parks, restaurants, and shopping.
Without these factors, you will have a harder time renting or selling your investment property.
Managing the Property
After you buy an investment property, you are responsible for it even if you aren’t living there. It’s important to consider whether you have the time or the desire to manage rental property before buying.
Someone will have to deal with tenants and handle property maintenance on an ongoing basis. Someone will have to collect the rent and advertise the property when it’s vacant.
Consider whether you can handle these tasks on your own or if you have the money to hire someone to handle these things for you. Owning property is a big responsibility but there are definite rewards.
When you own rental property, you earn passive rental income, and the real estate value grows the longer you own the property.
Have an Exit Strategy
Buying property should start with an exit strategy in mind. You should know what you plan to do with the property before making the down payment.
Many investors have bought properties with the intent to sell for a higher price. When the market didn’t cooperate, they lost their investment.
That’s why it’s important to have more than one option for what you plan to do with your property. Will you pay for the property monthly for thirty years? Will you rent it out now and sell it when the market peaks?
Know the various exit strategies that exist for you.
Play It Smart
Real estate can be a great investment. But it’s important to have a plan when purchasing a rental property.
Like any other business, investing in real estate has its risks. Remember to do your research to pick the right property at the right price in a good location.
Soon, you’ll be on your way to a solid investment property that will provide extra income for years to come.
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