Buying a property is always a great way to invest. However, there are several things to keep in mind before buying an investment property.
How well you manage the proceedings will go on to determine whether your financial goals will be realized.
You don’t have to be wealthy to buy an investment property. Yet it is extremely important to make wise decisions whether you have bought three investment properties or this will be your first.
Since the property market is one of the most volatile ones, understanding the correct dynamics can be pretty difficult, especially if you are not familiar with the market.
Hence, it would be prudent to make a purchase only with much forethought. The following tips can be helpful.
Choose the right property and the right price
Investing in a property is only sensible if the given property is going to increase in value in the upcoming years. In addition to this, it is also equally important to understand the correct market price so that you make a fair deal.
Since the market prices of real estate are not highly transparent, it can be difficult to understand the actual price.
Therefore, it would count to do some background research. This is also where using a qualified local realtor can really pay off.
Prepare a long-term financial plan
If done in the right way, property investment can be one of the most profitable sources of income generation, giving you very quick returns.
However, it is important that you have a clear financial plan. For example, you can use a loan or a mortgage when buying the property and then later rent out the property. This way, the rental income itself can be used for paying the mortgage.
However, the rental income will also be affected by the system of taxation followed in the area. Therefore, make sure that you learn about the cost of all insurances and taxes before making a move. Many areas charge a bed tax which can be between 10% – 15% on top of normal taxes.
Hire a property manager
Buying a property involves a massive financial investment. If you are not familiar with the market, it can be hard to understand the actual value of different properties. Along with this, the process also involves a number of other things such as taxes, legal process, rental laws and much more.
Property managers, being professionals in the field, can easily help you through all of these issues. You may have to shell out some amount as a fee for the property managers. However, they will definitely help you secure a constant flow of renters in your home as well as make sure maintenance is kept up.
Understand the area
When you are buying a property, it is important to understand the area. It is not possible to learn everything on the internet. Hence, it would be advisable to talk to knowledgeable local real estate agents. This is important because your local realtor will know which neighborhoods have the best chance or history of increasing or decreasing property values.
Go for a massive down payment
FHA and VA mortgages are generally not available when you are buying an investment property. However, you can always opt for conventional financing, which will require you to make a down payment of 20%.
You can also opt for a higher down payment so as to bring down the rates and monthly payments. It should be noted that the mortgage rates for investment property tend to be higher than those of primary residences. Hence, it is important that you plan on this when adding up your potential profits on homes you’re looking at.
Additional costs for repairs
If you are buying an old property, you may have to make a number of repairs before renting them out or making a resale. Not doing so can affect its market value. Hence, it is important that you include the cost of upkeep and repair to the total cost of the property.
Do not put off making repairs to save money. It will cost you much bigger in the end.
While investing in property, it can be tempting to go for large-scale investments with the expectation of getting an equally large profit line. However, this can be very risky unless you have grown very familiar with the market and can afford to play around with the investments.
If you are new to the area, it would be more advisable to start small and then gradually move on to larger properties when you are prepared enough to handle them. This will give you an idea of how things work out in the market while also giving you a continuous profit on the side.