Choosing the right investment property isn’t rocket science but it isn’t a simple equation, either. Approaching it with thoughtful consideration and enlisting the expertise of a real estate professional can help you find the right first property for you.
Know your goals. Are you looking for a long-term or short-term investment? How do you want to make money from this investment? Are you looking for ongoing income, long-term investment, or do you want to renovate a property and flip it for a profit?
Know your abilities. How much money do you have to invest and how will you fund ongoing costs, such as condominium maintenance fees and property taxes? Investment financing requires a larger down payment of 30 to 35% down. Today’s financing is means that your buying power is greater than it was just a few years ago.
Find an expert you can trust. A real estate agent who specializes in investment properties and knows your goals can help you work out your financial equations and guide you to the right property.
Get prequalified. This is as important a first step for investors as it is for homebuyers. Once you’ve secured your cash and gone through a pre-approval process, your loan officer will tell you what your monthly payments will be according to the interest rate that they can secure for you. With this in hand, you and your agent can work out the equations for cash flow and rate of return.
Consider the best type of property for you. What type of property will best help you achieve your goals? You don’t need to love a place that is strictly an investment, and you shouldn’t let emotion sway your decision – unless you’re investing in a property that you plan to live in some day. Choosing an investment property is a financial decision and it is best made when evaluated as you would any financial decision.
Work out the financial equation. Before purchasing any investment property, be sure to thoroughly evaluate it to make sure it is actually a good investment. Consider your budget, the financials of the property (such as taxes, mortgage payments, and homeowners association fees), and any repairs that are needed.
Make a plan. Once you have your goals and finances in hand, you are ready to go shopping. Having specific criteria will make your search most efficient and effective. You can stay focused on the type of property within your price range in the neighborhood(s) you’ve identified. You’ll find it easier to evaluate properties against the financial equation you’ve worked out.
Don’t buy cheap for cheap’s sake. Do your research. Look for hidden costs such as planned assessments and hidden savings such as lower monthly fees or property taxes. Look for financial risks.
Location, location, location. This old adage holds true for investment properties. Whether you’re looking for rental income, a short-term sale or a second-home, focus on the best neighborhoods that meet your goals. Make sure you know the history of renter demand in the building or neighborhood. Take into consideration the historical rate of appreciation for properties in that neighborhood. Understanding the power of location as it relates to your investment is key.
Set a timeline for evaluating your investment. Not all properties are the best investment for you for all times. This is especially true if you’re looking to renovate and flip, or to hold for a shorter period of time. Watching the performance of your property and the local real estate market will be important to maximizing the value of your investment. Keeping in touch with your experts – your real estate agent, property manager, and tax or financial planner – can help you know when it’s time to make changes.
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