Buying an investment property is a big decision, and while the process isn’t necessarily an easy one, it can be a productive, lucrative one if you’re careful. Finding the right location, taking care of it, and finding the best tenants are some of the most important aspects of the process. However, it’s also crucial for you to have an understanding of what makes an investment property profitable.
Knowing what to look for–and what tenants are looking for–will be a major asset to you. So, start doing some research and look for resources that will teach you everything you need to know. Here, The Purpose of Money shares some tips on how to begin when you’re ready to find the perfect investment.
Educate Yourself
You might already know some of the rules regarding real estate. Heck, you might even have experience in the field. However, it’s crucial that you familiarize yourself with the basics of investment properties. This means knowing what to look for in terms of the condition of the building, and how to hone in on a great spot that will attract renters.
Some of the best properties will be in a location that’s close to shops and restaurants and will include security features (think alarm system, gated community) and seasonal amenities (think pool), so if the spot you want doesn’t have those, you’ll need to add them to your budget.
Do Your Homework
Once you know what to look for, it’s time to start searching. Begin with the neighborhood and narrow down your options by doing a little homework. Research what is the crime rate like there. What are the schools like?
Additional questions to ask are: How close is it to the nearest big city? How quickly do homes sell in the area, and what’s the average sale price? If you’re looking in a hot real estate market, once you find a place you like, you’ll need to move quickly. You can also research the average tax rates so you’ll know for sure your tax responsibilities won’t be overwhelming.
Brush Up On Your Repair Skills
Becoming a property owner requires a willingness to step up and make repairs or renovations before listing a property for rent. So, it’s a good idea to brush up on your DIY skills and learn to recognize when a project is just too big–or dangerous–for you to handle.
For example, fixing damaged drywall is something you can probably tackle, but repairing a broken or malfunctioning appliance should be left to the pros.
Read customer reviews online before booking a repair service and getting a quote. You might also be able to use the review site to find a deal in order to cut costs. If you can, develop a relationship with a reliable handyman or appliance service. This will serve you well in the future if you continue to invest in real estate.
Protect Your Investment and Yourself
If you intend to take out a loan to fund your investment purchase, you’ll need to invest in homeowners insurance as a safety net. Protecting your property is paramount when you have a mortgage on the line.
Shop around for a policy that offers you a competitive price for comprehensive coverage. Bear in mind, that you may also need to purchase a landlord insurance policy too.
Once you buy a property and find tenants for it, you’ve established that you’re someone who can be trusted. That’s why it’s important to protect your reputation by creating a business structure that will offer some protection in the event of litigation. Forming an LLC is a simple way to shield your personal assets, and it also offers tax benefits as you build your investment property business.
Decide Who Will Manage It
When it comes to renting out your property, you have the option of working with a property management company or handling everything yourself. Each approach has its own advantages and disadvantages.
If you manage the property yourself, you will have more control over who rents it and how it is maintained. However, this also means that you will be responsible for marketing the property, screening tenants, and handling maintenance issues.
If you work with a property management company, they will handle all of these tasks for you. But this comes at a cost—property management companies typically charge a percentage of the monthly rent. So, before making a decision, be sure to weigh the pros and cons carefully to see what makes the most sense for your situation.
Overall, if you are looking for a solid investment opportunity that has the potential to grow your wealth, then investing in rental property is definitely worth considering. However, it’s important to remember that there is no such thing as a “sure thing.”
So, be sure to do your homework and take the necessary precautions to protect your investment. With careful planning and execution, owning a rental property can be a great way to secure your financial future.
If you’re going to get a mortgage on your first investment property, check out our Ultimate Guide To Getting A Mortgage eBook. It walks you through the mortgage process so you get the best deal for your budget.