Investment Properties 101: What You Need to Know Before Buying An Investment Property
Real estate investment property can do wonders for your financial future and help you build wealth and passive income. But what are the secrets to success?
First, assess your overall financial picture and how real estate will fit into your overall investment portfolio. Determine what type of initial financial investment you’ll make, what type of financing you’ll utilize and what your short- and long-term goals are.
Consider what the current market rents are for the property type you have in ind in your desired area. An experienced real estate agent or property appraiser should be able to help with this. You can also contact property management companies and peruse classified ads online. You can then determine what your net income on the property would be each month (also remember the tax benefits, if any) after factoring in regular and unforeseen maintenance expenses.
Determine also your long-term strategy for owning the property.
Finding a property with an opportunity for long-term equity growth and cash flow makes sense for more people than planning to buy and flip with an eye toward a fast profit.
Ask yourself these questions:
- Would you be willing or able to break even, or potentially take a loss on the property each month, anticipating a high sales price in the future? If you’re putting the minimum amount of money down, creating lots of cash flow is more difficult.
- Would you be able to cover the property’s expenses if you had vacancies?
- Would you have funds to cover future improvements and repairs?
- What type of tax benefit could you expect based on your overall financial picture?
Lenders have different requirements for down payment and qualifying when you are purchasing an investment property than when you are purchasing a primary residence. And loans for 5+ units are completely different than those for 2-4 units. Have a firm grasp of what’s required for the type of property you’re seeking before you begin your search.
Mortgage lenders will typically charge a higher interest rate (one or more percent) on an investment property than on a primary residence. That’s because lenders consider investment properties a higher risk.
In calculating their risk, things that lenders look at when considering to lend on a rental property are the amount of down payment, previous landlord experience, borrower’s income and assets, and the property’s income.
Would you like to further explore the possiblity?
Whether you are considering purchasing your first investment property or an additional property to add to an existing portfolio, we’d be happy to help you find a property that matches your needs. Here are a few currently available investment properties: