Things to Remember When Buying Your First Investment Property
Real estate has certainly been the manufacturer of a large chunk of the world’s richest people, so it is by no means surprising that there are lots of reasons why many people believe that property investment is the way to go. However, just like any other type of investment, it is far better to be well-versed in the matter before you put down hundreds of thousands of dollars. So be sure to keep on reading and get yourself prepared in order to kick-start your new career as a real estate millionaire.
Do the Math
Wall Street firms that purchase distressed properties try aiming for a 5-7% return, as they need to pay staff. However, when it comes to individual property investors, they should try setting a goal of approximately 10%.
It is important that you bear in mind the maintenance costs of the property that is generally around 1% per annum. In addition, there may be other costs, such as property taxes, insurance, possible HOA fees and monthly expenses such as gardening.
Condition of the House
After watching all those home-flipping reality TV shows, it is certainly tempting to buy a house at the cheap and flip it into a gorgeous rental property. However, reality TV isn’t real, as ironic as that may sound. So if this is your first investment property, doing this is most likely a disastrous idea. This is because unless you have a quality contractor who does work at low prices – or you are already really skilled at the art of making large scale home improvements – you will most likely pay far too much to renovate the property. Hence, if this is your first investment property, try and seek out a home that is priced below the market and only needs some minor touch ups.
Neighborhood
The location of the property is just as crucial as the home itself. So be sure to choose an area wisely and make sure it is a place where people actually want to rent out and live in.
The most crucial thing to keep in mind is neighborhood safety, which means ensuring that the crime rates around the block aren’t too high. In addition, curb appeal is also a major player, as potential tenants are more likely to be drawn to a street with well kept gardens and nicely painted houses.
If you are targeting families as potential tenants, it is important to bear in mind that they will most likely be on the look out for rental properties that offer good schooling opportunities. Hence, be sure to have a look at the local school district, as parents will most likely be seeking areas that offer schools with better reputations.
The Bottom Line
Like any other kind of investment, you need to ensure that your expectations are realistic. There is no way an investment property is going to send you large checks every month and you have to remember that investing in a wrong property can lead to large financial burdens in the future. Hence, be sure to act smart, talk to more experienced investors and do your research before taking the dive right into the deep end.