What You Should and Shouldn’t Do When Buying Your First Investment Property
Real estate can make for a sound investment. If you are interested in buying a rental property, whether it’s for short-term or long-term tenants, this is a decision you need to really think through. Making a mistake could end up costing you in terms of ROI, so you need to find the right home and make the right moves to get it set up and filled with tenants. While this may seem like a complicated task, these questions can help you get off to the right start.
Should I Buy a Home That Needs Work?
It’s fairly common for real estate investors to flip or buy homes that are in need of repairs, and purchasing a fixer-upper to rent out for profit could be a good move for you if you’re smart about it. If you end up looking at fixer-uppers or foreclosures, you need to seriously consider the cost and extent of the repairs needed, to properly assess your potential ROI.
For example, a central air conditioning system can be crucial for attracting potential renters to your investment property, so proceed with caution if the home inspection notes issues with this part of a home. Installing a new system can be a costly undertaking, with most homeowners spending around $3,000 to $7,000 on central air installation. You also want to make sure that the home is well insulated for the colder months. If heat is escaping or you see fogging or moisture on the glass, you likely need to replace the window glass which typically runs between $170 and $375.
For serious repairs, it may be best to try and negotiate with the current owner to have the problem taken care of, rather than taking the risk of buying an investment property “as is.”
Should I Buy a Property That Is Close By?
This is another common question that real estate investors ask themselves, mainly because managing a rental can be so challenging. If you are thinking about going it alone when it comes to marketing and managing your investment property, then sticking with local properties may be your best bet. Then, you will be able to meet potential tenants for showings and take care of any maintenance or repairs that come up regarding the new home.
If, however, you would prefer to buy an investment property in another location, know that managing property long distance can be even more challenging than trying to do so locally — but it can be done. After you buy your first investment property, you will need to assemble a team of professionals that can help you out with any management or maintenance tasks, including a handyman, contractors, cleaners, and even legal experts. Of course, if you want to streamline all of this hard work and make managing your property from afar less of a hassle, you could always hire a property manager.
Should I Be Prepared for Any Extra Financial Steps?
Obviously, buying any home requires a major financial investment, and you’ll want to consult with a reliable and skilled agent before making any decisions. Purchasing an investment property can require an even heftier amount of upfront cash and credit. You see, when you purchase a primary residence, lenders are more likely to make exceptions and extend credit because they know you will be living in the home. Having a place to live is a huge incentive for keeping up with mortgage payments. With an investment property, there tends to be more risk involved for those lenders.
If you are planning on using a loan to finance your purchase, be prepared for some additional financial requirements. For example, you may need to come up with a larger down payment in order to be approved for a loan on an investment property. Your credit score will also need to be higher to be approved. So, if you are thinking about buying an investment property, be sure that you can meet these requirements.
You really do need to be methodical and practical when considering such a major purchase, and you also need to take care when searching for the perfect investment property. Of course, keeping this guide handy won’t hurt either so you will know which questions to ask yourself as you look for, buy, and set up your first investment property.
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