Monday, 29 October 2012

5 Pieces of Advice that will Ensure you Buy a Valuable Investment

It’s Winter—and change is in the air! But that’s not the only plus, for those interested in real estate investing, property sales prices are low and with winter right around the corner that means rent prices will soon skyrocket. If you are new to the world of real estate investment, you can actually expect to make a decent profit if you plan to purchase your first investment property.

However, it’s best to keep in mind that even though many have succeeded, property investment is like any investment—it comes with risks—especially if the profit potential is significant. As a property investor who decided to rent property, you will earn extra taxable income as a landlord via monthly rent from your tenants. However, as you earn rent in the short-term, you’ll also benefit from your property’s value appreciating over the longer term if you invest smart and maintain your property wisely.
As a fairly successful property investor myself, here are my tips for buying rental property for investment and profit:

1. Be Realistic about the Challenges Associated with rental Properties

And by that I mean—be fully aware of what you’re getting into as a landlord before you get into it. After you buy your investment home, condo, townhouse, or apartment, you’ll have your work cut out for you with responsibilities such as posting rental ads, screening tenants (according to the law without discrimination), getting your property ready for tenants, repairing things after they move in upon request, collecting rent, maintaining the landscaping, paying your property taxes, etc. No, being a landlord is no walk in the park, so be prepared before you even start looking at investment properties. And be wary of properties that need more than simple cosmetic repairs unless you can afford to do them yourself or know a good contractor.

2. Getting your Finances in Order
If you plan to get a mortgage for an investment property, you’ll need to put 20-to-30 percent down before you can even make an offer. Plus, on top of that you can expect your interest rate to be higher than it is for your primary residence. This means you’ll need to start saving a comfortable amount of money we refer to as a “cushion” (or rather about 4 months’ worth of expenses so you can cover things like unexpected maintenance, sudden tenant vacancies, etc.). It’s also wise to clear up any outstanding debt that could impact your mortgage rate in a negative manner.

3. Find a Real Estate Agent you Trust
There are real estate agents—and then there are real estate agents. What I mean by that is that there are those who show first time home buyers potential properties to buy—and then there are agents who have experience representing real estate investors. The later choice knows what you’re looking for in an investment property, and they can research available properties more efficiently and get you in to see them faster. Before the search begins, be upfront with your agent about your budget and your financial goals, and partner with an agent you trust, and one who you know will move the process along seamlessly for you.

4. Do your Research
Sure, you have a real estate agent working on your side; however, it’s still wise to do your own research on the areas—for instance:
  • What parts of town are more desirable?
  • How much can you charge for monthly rent?
  • Review rental market data in different areas to find out what features in a home will earn the best return on investment (i.e., number of bedrooms, location, and yard size)?
5. Always get a Property Inspection
Some property investors think they know the worth of a home by looking at it. However, this can be a costly mistake. I always get the thumbs up from a licensed home inspector before I sign any contracts. Home inspections include things like air quality tests, septic tank and water quality tests, as well as structural inspections for details that even the handiest home renovator might overlook.