Investing in your first property can feel extremely overwhelming, especially if you don't have a lot of experience in real estate. There are several factors to consider, and making a poor decision along the way can cost you big time down the line.
But with the proper knowledge and planning in advance, you can rest assured that your investment will be worthwhile.
Ready to take the plunge and buy your first investment property? Read these five tips to help you succeed.
1. Get Your Finances in Order
Buying an investment property is a major financial decision. Not only will you need to put up a hefty downpayment, but you'll be paying monthly expenses such as mortgage payments and property taxes.
If your finances are in shambles, adding another mortgage payment and spending a large chunk of money on the downpayment will only make things worse for you. You might find it even more difficult to keep up with your monthly bills.
That's why you need to get your finances in order before investing in a property. If you have debt that you're already struggling to pay off, it might be best to hold off on adding to that debt. By paying off your credit card debt and other loans first, you'll feel a lot more confident when investing in a property.
Also, make sure you have the money for a downpayment. If you don't have it, you can consider going in on the investment with someone else so you can split the downpayment. Otherwise, you'll have to hold off on purchasing an investment property until you have sufficient funding.
2. Find a Low-Cost, High-Value Property
This is the most important piece of advice for new investors. The value of your investment is determined by (a) how much you purchase the home for and (b) how much that home appreciates in value over time.
If you don't hit both of those marks, your return on investment (ROI) won't be as high as you'd hoped.
For example, you might find a cheap home that really catches your eye because of the low price. You purchase the home but find that the value is not increasing because it's in a poor location or is a real fixer-upper. So, although you found an inexpensive home, the investment isn't paying off at all.
By finding a relatively low-cost home in an otherwise good area, you can really capitalize on your investment. Look for properties that are surrounded by quality retail stores, highly-rated schools, nice restaurants, and more businesses that'll attract people to the neighborhood.
It's important to work with a local real estate investment company that really understands the local market. They will be able to find you the best deals on homes that'll appreciate in value over time.
3. Beware of High Interest Rates
Oftentimes, interest rates will be higher for investment properties than if you were purchasing a home for yourself to live in. That's why it's especially important to be aware of these increased interest rates when considering your mortgage options.
A high interest rate really cuts into the value of your investment, and will greatly decrease the profits you make month-to-month. Take some extra time to look for the best mortgage lenders that will offer you lower interest rates--it'll really pay off in the end.
4. Calculate Monthly Expenses
Beyond buying the investment property, you'll also have to consider monthly expenses. These expenses are unavoidable and will cut into your profit every month. It's important to determine these expenses before purchasing a property to give you a better idea of how much you'll be making in profit.
For example, you'll need to pay for property taxes, mortgage payments, maintenance, property inspections, tenant screenings (applications, background checks), and more. By having an estimate of what this will cost each month or each year, you'll be able to set a rent price that'll pay for those expenses and still earn you a profit.
5. Work with a Property Management Company
After purchasing an investment property, you'll want to hire a property management company to handle the day-to-day tasks. These tasks include finding quality tenants, performing home inspections, fixing any issues in the home, collecting rent, and handling any issues with current tenants.
By working with a property management company, you'll collect passive income each month without having to deal with the daily tasks of being a landlord. Property management companies have local connections with electricians, plumbers, and handymen so you won't have to worry about tracking any down during a crisis.
Buying an Investment Property Doesn't Need to Be Hard
There are a lot of things to consider when buying your first investment property, and it may seem a bit overwhelming to someone who hasn't done it before. But if you work with people who understand property investing and the local real estate market, you'll feel a lot more at ease.
That's what we at Professional Real Estate Management strive for; we want to make investing in real estate easy and achievable for all entrepreneurs. Contact us today to learn more about how we can help you invest in Clearwater properties.