Purchasing your first investment property can be a daunting but achievable goal. If you manage to conduct a proper evaluation of your situation and purchase a property, the rewards can be astounding. According to Forbes, investment properties have remained a valuable investment over the years, even as other investments may decline. With the right information, you will be set to earn significant returns from the property even if it is your first one.
Here are eight vital things you should have in mind before purchasing your first investment property.
1. Extensively research on the location
What type of tenants do you need in your investment property? Is it located in an area that has that particular group of people nearby? These are the type of questions you should answer when researching the type of investment property you want to purchase.
Through extensive research, you can find the type of investment property that is appealing to the market. As such, your returns will be rewarding and constant since tenants will always be abundant. More so, put finances over personal preferences; this will help you make a sober investment decision.
2. Understand your financing options
As mentioned, purchasing your first investment property can be a complex process. However, an established budget and a carefully thought out payment plan can help put things in perspective. The best financing option for your first investment property is a mortgage loan. Consider your financial goals and current situation as they will have a significant role in this decision. Before applying for a mortgage loan, ensure that you have a sizeable down-payment in place.
Also, be sure to clear all your pending loans before taking a mortgage loan to invest in property.
3. Understand the rental market
You must gain a good understanding of how the real estate market operates before venturing into property investment. Consider the future; will the area be as robust in five years or a decade as it is now? What guarantees more returns, investing in property around your current location or a different area?
Housing market trends offer invaluable insight regarding the best place to purchase your first investment real estate. Technology has also made it possible to conduct predictive real estate analysis. Making use of such innovations will help you make a very sound decision.
4. How will your property be managed?
Property management is a booming industry and as such needs to be treated with the same respect as other reputable fields. The main job for a property manager is to keep things in check between you as the realtor and your clients. More so, they also offer professional advice when it comes to ways to increase property value as well as the appropriate times for rent reviews.
A property manager also offers significant help when it comes to navigating the laws governing the real estate industry in your area. Not to mention, rent will never be late considering good agents ensure the rules put in place when tenants move in are upheld. Seeing this is still your property, be sure to conduct random inspections to guarantee your property management company is doing a good job.
5. Leverage on home inspections
Word of mouth, images, and videos of buildings can be convincing, but nothing beats a personal home inspection. Think of it this way, would you invest your hard-earned cash in something you have not seen? Visiting the area and property you wish to purchase not only helps you answer some of the questions above but in solid decision-making as well. What is the condition of the property? Will renovations be required? Are the facilities up to standard?
Inspecting the property helps you outline any potential problems which can significantly change the property’s valuation.
6. Be aware of the appraisals
Calculating your margins is an essential factor to consider when buying your first investment property. Every real estate investor has a reasonable appraisal of the property they wish to buy before making a purchase. Even Wall Street aims to get 5% to 7% on returns for any distressed property purchased. When assessing the potential property, consider factors such as property tax, insurance, and recurrent expenses such as landscaping and repairs.
7. Consider insurance
Property insurance is one of the best backup plans to have for your real estate investment. It can protect you against property damage and liability. If you plan to have any commercial ventures on your property, insurance is the best way to ensure adequate protection.
8. Be aware of the operating costs and returns estimates
Before settling on the charges any potential tenants will incur for space on your property, you should calculate your operating cost. For a new property owner, half of the rent should be enough to handle your operating costs. It should cover repairs, daily operations, and tax and loan deductions to mention a few. Calculating your returns will also help you plan what to reinvest, save, or spend without affecting any future plans.
Always be wary of red flags such as unbelievably low insurance rates and stay alert for unexpected phenomena such as record migration.
With the above tips, you will be in a position to purchase and begin profiting from your first investment property.