Whether you’re a first-time buyer or more experienced or buying your first investment property or your fifth, there are many things to consider when purchasing an investment property. Having the right know-how is the key to avoiding mistakes and ensuring you find the right property at the right price. Buying an investment property can be one of the most exciting and rewarding things you do. It can also be quite intimidating and can help grow wealth over time, but selecting and purchasing the right property is not a decision to take lightly.
Here are 10 tips to bear in mind as you look for property.
Know the Market
Buying your first investment rental property can seem overwhelming, but the process doesn’t have to be complicated. When finding the perfect one, correctly understanding how the market works can set you up for success.
Before you even begin looking at potential properties:
- Research the market
- Decide on a price range and a target location.
- Research the rent in the area, as well as resale values. If you are purchasing a rental, determine the vacancy rate and average rent in the area, as well as the average occupancy.
Know Your Banker
Buying an investment property requires due diligence, but that doesn’t mean you should pluck the first house you see from the listings. Knowing who your lender is can help you make an informed decision about which house to make an offer on. Whether you’re looking to buy your first house or an experienced real estate investor, you’ll know the importance of choosing a good mortgage company. Having a good relationship with someone who can help you secure a home loan is critical, and, like any new relationship or potential partnership in business, it pays to know the ins and outs of your banker.
Know Your Credit
Learning how to build credit is the first step toward owning an investment property. Good credit will allow you to qualify for a higher interest rate, which can save you thousands of dollars over the life of your loan. Real estate is a great investment, but this doesn’t mean you should spend money on a home you can’t afford. When you are buying investment properties, it is important that you have control over your spending. Learn the rules and strategies of real estate buying and also how to practice responsible credit use.
Know Your Down Payment
If you are planning to purchase an investment property, then you’ll need to have a down payment ready. The first step in buying it is determining just how much you have to invest. Down payment requirements will vary by location, property type, and lender, so it’s important to know more than just your monthly budget and even consider your savings and investments.
Know Your Credit Score
Knowing how your credit score will measure up to potential buyers can play a significant role in your investment strategy—you may find that getting out of debt, lowering your debt-to-income ratio, and paying down credit cards can have a significant effect on your credit score. An improved rating may allow you to buy a more expensive or desirable property with a better interest rate.
Understand depreciation
When you own an investment rental property, depreciation is one of the costs you need to include in your investment budget. Depreciation is a number that reflects the decline in the value of your rental property over time.
Find a property that fits your goals
The key to investing in real estate is finding the perfect property. Whether you are a first-time investor or a seasoned pro, it’s helpful to follow a few guidelines that will help you find the right property. The first thing to do is to define your investment goals.
Focus on location
Finding the right location is key to growing a property portfolio. When buying investment properties, location is often the most important factor. You want to choose an area that has stable home prices, a good rental history, and a low unemployment rate so your investment will grow.
Look for low maintenance
Owning rental property can be a big commitment since the value of your rental property can fluctuate depending on its occupancy and location. However, one way to own an investment property is to find properties that have low or low maintenance costs.
Prepared to negotiate
Buying a property that you intend to put money into and rent out can be a fantastic investment, but you need to consider all the factors involved before you buy. It’s important to know how to negotiate before you buy. Preparing for the negotiation stage of buying a home makes all the difference in your success. When preparing for them, the important thing is to remain relaxed and think clearly.