Your Guide to Buying Your First Investment Property
You might have heard that owning a rental property is a great investment. Some people—although interested in the prospect—are still intimidated by the idea of managing another property and making sure they get an adequate return for their money. Use these tips to your advantage and make an investment you can be proud of.
Learn Everything About Real Estate
Unfortunately, it is not as simple as buying a cheap property and selling it out—that is a little too simplistic. Real estate is an incredibly nuanced business. Read books on real estate or take a real estate 101 class to at least get the basics down. Perhaps you know someone in real estate who is willing to sit down with you and teach you one-on-one. Maybe you can go with them to an open-house or you can find an internship. Do not be intimidated—everyone has to start somewhere. It is better to ask questions than to make a big mistake.
Learning how to own a rental property takes a lot of time, and finding the right property to buy can take as much time. With all of that effort, make sure it is something you really want to invest your time in and not to mention your money. You will have to interact with tenants, and not all of them will be the best. You will also have to stay on top of upkeep. In addition, if you already have to work plenty of overtime and raise a family in the meantime, this may require too much from you. In all likelihood, you will have to keep up with problems in maintenance. Consider if this is right for your lifestyle.
Avoid the Temptation to Flip
If this is your first investment property, it may be wiser to avoid the fixer-upper house. Unless you are already coming in as an expert on large-scale home improvement, you are probably going to spend more than you intended. Instead, keep your first rental simple so that you can learn with little consequences.
It will not do to just buy a property in any location. A renter is going to look for something where they get the most bang for their buck. What do you look for as a renter? Look to buy in an area that is safe, with a good school district, low property taxes, and a good job market. These are all things that are appealing to most tenants and will become a major draw.
Get a Low-Cost Home
If you are not used to handling more expenses, it may be best to start with a low-cost home or complex. Otherwise, you will have to adjust to higher ongoing expenses. Remember that you are already handling a mortgage. In addition, you will have to calculate expenses on the property. There will always be continuing expenses on upkeep. It is standard to use the 50/50 rule. If you charge four thousand in rent a month, then you can expect to save two thousand after expenses.
Prepare to Not Make as Much at First
When you start out with one investment property, you are relying on that one property for big returns. There will be certain risks involved. You may go the first few months without tenants, or worse—you may have to evict them. In these instances, you will still have to pay for maintenance and upkeep, property taxes, and insurance. Before you buy, make sure you have enough in your savings account to handle repairs early on.
Don’t Be Discouraged
This list may sound like a lot of bad news, but it’s not. These are simply some of the trials you will have to go through to find success in a rental property. Even the Property Brothers had to start somewhere. In television it looks glamorous and easy, but there is still a lot of work involved. Although, if you are willing to put in the work, you will see a huge boost in your bank account.