Locking In: Buying Your First Investment Property
By Katie Conroy of advicemine.com.
In 2019, it was revealed that real estate had emerged as America’s favorite type of investment. With millions flocking to brick and mortar as a means to grow wealth, you’ll need to research thoroughly and act quickly if you want a high-potential property of your own.
Finding a Property
Unlike buying a property for occupancy, your reasons for buying an investment property are more likely to come down to monetary factors such as appreciation, rentability, or re-sellability. It’s important when looking at a location, to pay extra attention to its commercial appeal and demography – if you’re looking to rent the place out, you’ll want to find somewhere populous, with a good class of tenant, for example. Generally speaking, a property that can produce monthly rent equivalent to 2% of the purchase price is likely to produce a positive cash flow for the investor.
You’re buying a property to make money but, if done properly, the process should also involve spending some (on top of the purchase itself). Appraisers can help you to identify the objective value of a property and bypass much of the misleading information surrounding real estate, a buyer’s agent (realtor) will act as a source of knowledge, providing suggestions & narrowing down your options and it’s often worth enlisting the help of a home inspector to check structural integrity, plumbing and electricity before you proceed onto the buying stage.
Purchasing
When buying an investment property, it’s important to consider the added costs of property management before you enter into the buying process. Try to consider any added fees that might be spent on landscaping expenses, homeowner association fees, 3rd party property managers, or general maintenance.
If you’re held back by costs, you’ll find plenty of help from loan providers – private lenders often provide more flexible terms than conventional mortgage lenders when it comes to investment properties. Be aware, in comparison to loans for a personal residence, you are likely to pay a larger down payment with percentages around the 20-35% mark. An SBA 504 loan, for example, is perfect for commercial property purchases – with lower interest rates and up to 25 years in repayment terms.
Managing
You’ve found and bought a high-prospect investment property, congratulations! Now’s when the hard work starts. More often than not, an investment property will require renovation to increase its value, this is especially the point of a fixer-upper. If you’re in an area with high competition for renters, it could be worth considering some changes to improve the curb appeal – a new fence for the yard, for example, costs $4,500 on average (depending on materials, size of the fence, and place of installation). Be sure to use a platform like Angi to search for an ‘affordable fence company near me’ to receive a quote, then read online reviews and check for licenses before hiring any contractors.
If you’re taking in new tenants, it’s vital that you read up on your responsibilities as a landlord. Your property is much like a business and will require a few hours per week (minimum) for administration, comms, and maintenance. Unless you want to fork out for a property manager, you should be ready to spend money on repairs, replacements, and time on screening/maintaining tenants.
Properties often prove to be truly lucrative investments but, if you want to earn from them, you should expect to put in some hard work, or pay for the work of others. There’s plenty of competition on the market and landlords who have invested time (as well as money) are the most likely to profit.
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