Investing in real estate isn’t just about finding the best deal, there’s many other factors to consider. Read on to learn what to look for in an investment property so you don’t waste your money.
If you’re considering buying an investment property, it can be incredibly confusing to figure out where you should start.
From setting a budget to finding a real estate agent and trying to figure out how to finance remodeling projects, it’s easy to get overwhelmed before you even begin!
However, it’s no secret that investing in real estate can become lucrative fairly quickly. Especially if you’re interested in mastering the fine art of passive income, buying a rental property is an incredible opportunity.
Of course, if you don’t make smart, measured choices, buying investment property is also an excellent way to lose a large portion of your savings seemingly overnight.
In this post, we’ll tell you what to look for in an investment property.
Read on to feel confident about the decision you’re making when it comes to your first ever real estate investment.
1. Take a Hard Look at your Finances
Before you figure out what to look for in an investment property, the first thing you need to do is examine your personal finances.
In today’s world, the average American household is over $137,000 in debt.
If this describes you, then you need to think long and hard about whether or not now is truly the right time for you to buy a rental or investment property.
Take a look at your financial future, as well. Even if your debt levels are under control, what sort of upcoming expenses do you have coming up?
Are you nearing retirement? Do you have children you’ll soon need to put through college? Are you in over your head when it comes to your student loans? What about your medical expenses?
Make sure all of these things are manageable to avoid a financial disaster.
Further, you need to understand that the cost of a down payment on your investment property will likely be a bit more expensive than a traditional home buying experience.
In most cases, buying a rental property will require you to pay about a 20% down payment up front. Ensure this is a sum you’re comfortable with before you make any final decisions.
2. Don’t Forget your Expenses
When you’re buying an investment property, it’s also essential that you take the time to figure out what your operating expenses will be.
This can help you to have a more accurate understanding of how large your profit margin will really be — and help you to determine a good rental price.
You’ll need to consider:
- Property taxes
- Heating/electric bills
- Water bill
- Unexpected repairs
- Garbage collection
- Maid/cleaning service
- Any property management fees
Another important thing to think about when you’re calculating your operating expenses?
How much interest you’ll need to pay each month on any money you borrowed in order to finance the purchase of your investment property.
This is why it’s always a smart idea to shop around with several different lenders before you make a final decision.
Remember, it’s always better to go for the option with the lower interest rate. Yes, even if those with high interest rates off you more money.
3. Resist the Fixer-Upper
We know that, when you’re trying to understand what to look for in an investment property, it can be tempting to go for the fixer-upper.
After all, you’re getting the home at a great price, you’re able to start work on it sooner, and it has an easier closing process than most. Not to mention, you’ll also have a fun and exciting project to work on over the next few months.
Here’s the reality check that you need: home renovation costs are skyrocketing.
In fact, they can quickly run to over $50,000 depending on the size of your home and the kind of renovations you need done.
Don’t be fooled by the seemingly “cheap” cost of run-down fixer-uppers. Especially if you’re new to the world of real estate investing, it’s simply not the place you want to start.
Plus, keep in mind that the overall timeline of the renovation projects will make it difficult for you to turn a profit quickly. You won’t be able to start renting out your property until all of your renovations are complete.
And even if you’re able to set a firm deadline with contractors, things like poor weather, a lack of the required materials, and even worker injuries can slow down the process — and end up costing you even more money.
4. Consider the Neighborhood
When you’re buying a rental property, one of the most important things to take into consideration is the neighborhood that the apartment or home is situated within!
After all, no one wants to live in an area where they feel unsafe, or where they can’t get the things that they need.
Look for a space that’s located somewhere near the center of town. Walkability and access to central transportation hubs is especially crucial if you’re more in the market for short-term or vacation renters that don’t really know the area.
Of course, you should also make sure that there are plenty of things for your renters to actually do in the area where your property is located.
Be aware that your neighborhood will also be a huge influencing factor on the type of people that are most likely to rent out your property.
So, if you’re concerned about a bunch of college kids renting out your property and causing thousands of dollars in damage Then you might not want to buy a property that’s close to a university.
You should also look into the rules surrounding rental properties in the areas that you’re interested in. Remember that you may need to pay additional fees in order to rent out your space, or meet with community board members to ensure that you’re on the same page.
5. Consider the Long-Term Investment
When you’re trying to learn how to buy investment property that will appreciate over time, it’s important to consider how you think the area will develop in the future.
You don’t want to end up in a neighborhood that’s trendy right now, but might become too overcrowded in the future.
Take a look at your city’s development plans and try to determine how they might impact the overall value of your property in the future.
For example, if a large factory is slated to go up in the area you’re considering buying within? You can expect to lose some money when you try to sell it.
Also take a look at things like parks, nearby school, malls, and other kinds of amenities. These are all things that could certainly have a positive impact on the overall value of your rental property in the future.
6. Work with a Professional
In some cases, buying an investment property just isn’t something you can — or even should — attempt to do on your own.
From finding the perfect location to managing your property when you’re away or preparing it for a future sale, getting help is always a smart idea.
High Return Real Estate’s process is explained on this website.
Essentially, this company and others like it work to help you find the perfect property for the best possible price. Then, they take care of the renovations in order to ensure you can start renting or selling your home as soon as possible.
They even offer property management options, so that it’s easier than ever for you and your family to collect a passive income — without having to worry about the hassle of maintenance.
Then, they mail a check to you every month. Talk about taking the guesswork out of real estate investment properties in your area!
You Know What to Look for in an Investment Property
We hope that this post has done an excellent job of laying the foundation of what to look for in an investment property.
Remember to first make sure that now is truly the best time for you to invest in real estate. Pay down your debt, consider your operating expenses and interest rates, and make sure you can actually afford the down payment on your property.
Also, when buying a rental property, consider the neighborhood, the long-term growth potential, and whether or not you could benefit from professional help.
Looking for advice on how to upgrade your property? Need design and maintenance help? Want to pay down your debt so you can buy?
Check out our website and blog for tips on how to make all of this — and more — happen for you.