When you’re thinking about long-term real estate investments and creating income for the future, naturally investing in real estate comes to mind. Before taking the exciting step to your first investment property you need to consider a few things. Like any business, real estate investment requires market research and the right business partners. You’ll also need to consider the area you’re choosing, potential investor loans, and whether you’ll use a commercial or residential property.
This article will highlight the 3 key parts you need to know before making the decision to purchase an investment property. Finding a trusted company to help you secure the best property is crucial. All of your concerns about purchasing your first investment property will be addressed so that you can feel confident in your decision.
Most real estate investors are looking to rent out their property to other businesses or people who are looking to rent a home. It’s always a good idea to start small and increase your investment as you learn how to navigate the real estate industry. The connections you make are very important because these professionals will be the people who can help you secure a loan and find the right contractors (if needed)
1. Market Research
You want to take this step seriously. The success of your investment property depends on the market research you do. Make sure you research the real estate company you want to work with. Shop around to ensure they’re the right partner. Research the city and area that you want to invest in. Will this market be profitable in the near future? What about 5-10 years down the line?
Are residents moving to this area or is this an area where you’ll have trouble finding tenants? These are all questions you have to consider beforehand. Market research is the most important step you take before making the decision to buy an investment property. Pay attention to property taxes and take the time to calculate your potential expenses.
Think about the following points:
- Is this area suitable for families’?
- Is this a low or high crime area?
- Find a trusted real estate team
- What is the cost of living in this area?
- How much should you charge for rent?
- How much will your annual expenses be?
- What are the risks associated with this property?
2. Investing and Down Payments
Unlike residential home buying, investment properties typically require a 25%-30% down payment. It’s always a good idea to have a larger down payment on the property you want. Now, having a large down payment helps you to secure the home but it also increases the riskiness if things don’t go as planned.
Compare potential loan prices online and look out for the interest rates. Fix and Flip properties appeal to many investors because you’ll be able to get your money all at once rather than waiting for monthly rent payments.
Your calculations are going to be your best friend and the numbers will relieve some of the stress associated with finding the right financing option. The traditional way of obtaining a rental property is to pay the 25%-30% for the property and then finding a bank to loan you the rest of the money. Another option is to use a ‘rehab property’ at a much lower rate. Of course, this property will need fixing up and a general contractor (or a few) to get it up to par for selling.
3. Contractors and Little Known Situations
Having a strategy for your rental properties is essential. Without a strategy that works your deals will flop and you’ll end up losing out on your investment. If you’re a beginner at this you’ll want to find a trusted mentor who can coach you through creating a strategy that works and what to do when unexpected events occur.
Properties that require fixing and repairs will be on the lower side of pricing but you will have to account for the cost to repair the property. Whether or not you choose to rehab the property is completely up to you. Going for properties that require more care has its benefits. These types of homes or buildings are always going to be less expensive than a property that is well taken care of.
Above all, make sure you’re going into this with the right mindset. As long as you have a well-planned rental property business strategy, and a team of helpful contractors, realtors, and investors to give you tips you will be fine and making passive income in no time.
Contact The Zion Group today to find out how we can help you receive financing, and for any questions or concerns.
Keith McLaurin | Licensed Commercial Broker ID#01190109 / NMLS#1209195