Tips To Purchasing An Investment Property

Purchasing an investment property can be a full-on win/win for many people. The real estate market has been a good one and although there is a slight "cool" in the air in regards to real estate, it is still a very strong market. Below are tips and questions to ask before you take the leap.

Something to think about if you are a first-time investor.

A single-family home could be the best investment option for you. Single-family homes are often in higher demand among buyers and renters. They are also easier to finance and manage than larger multi-family properties and often you can avoid HOA fees. The pro's of a townhome or condo is that general maintenance is usually covered under an HOA. However, if you are considering an attached dwelling, check with your lender to make sure it is warrantable. A warrantable condominium means it is eligible for conventional mortgage financing via Fannie Mae or Freddie Mac.

Questions to ask yourself when you are looking to invest:

• Do I have the necessary down payment?

• Will I have the time, skill, and resources to perform the necessary maintenance on the property?

• Am I willing to wait possibly several years to see a positive return on my investment?

Should you hire a property manager to manage your investment property?

If you find yourself overwhelmed by managing the property, maybe a property manager is the route you should take. What can a property manager do for you?

• Advertise rental properties you have available

• Interview prospective tenants, screen and perform background checks

• Determine how much you should charge for rent (they know the market!)

• Perform maintenance on the property (they will charge so get costs upfront)

• Make sure you are aware of all the legal issues surrounding rental properties

Location - location - location!

Ask yourself this: would you want to live there? In order to maximize the return on your investment, search for your investment property as though you are looking for your own home.

• Avoid run-down properties requiring extensive time, effort, and finances on your part to transform it into an attractive buy or rental.

• Consider purchasing a property close to home, that way visiting the property isn't such a chore

• Research schools, crime rate, neighborhood quality, and amenities

• Invest in an area that has a large rental base (ie - within a college town)

Do you have a plan?

When purchasing an investment property, there are certain strategies you may employ to find success. The first is to create a plan. Many times people fail at investments because they don't have a plan laid out prior to making their purchase. A plan can help you stay focused on your investment goals when searching for, managing, and one day selling your investment property.

Some questions to ask yourself when creating your plan are:

• How will you finance the property?

• Will you hire a property manager or self manage?

• Who will be doing the bookkeeping for your investment property?

• Are you creating an exit strategy?

• Have you accounted for all expenses that will be included in owning an investment property?

• Will you be using a 1031 Exchange?

Are you ready to be a landlord?

Not everyone is fit to be a landlord, but if you are able to manage an investment property, it can be a lucrative way to grow your wealth. Here are some tips to help you to get started as a landlord.

• Invest in an area you are familiar with, this will help you avoid buying in a neighborhood where no one wants to live

• Start small, this will give you an idea as to how much time and effort is required in managing a property

• Being a landlord is a business, and should be treated that way

• Before considering raising the rent, think about the benefits of having good tenants. The value in good tenants is they require less repairs and will leave less wear and tear on your home

Knowledge is power.

Don't let lack of knowledge deter you from considering an investment property. There are numerous classes, books, and articles online on different real estate topics to help you understand how the real estate market works. Being informed will help you make better choices when searching for that perfect investment home. Understanding how to translate a home inspection, and what repairs will cost most and take an extended period of time, will help you decide if the home is worth purchasing and repairing.

Only you know if it is the right time to start investing. Take your time to educate yourself so that you have a firm grasp on what is required when owning an investment property.

If you would like more information on topics regarding investing in real estate, or are ready to take that step and purchase a home, please call or email me and we can set up a time to discuss your investment goals.