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.
