Thursday, June 15, 2017

What Do You Need From Your First Investment Property?

It’s no surprise to see so many people plowing their hard-earned money into real estate. You only have to see how many people there are who have made an absolute killing on the real estate market to realize that it’s a mine worth digging in. But while it all sounds rosy on the surface, you have to take a lot into account before deciding on whether this is the game for you. And while there are other potentially safer options of investing, such as stock, which only requires a few dollars investment here and there. A property can cost up to six figures if you are serious about it. Here are a few things to look at before deciding on your first investment property.

Making Sure That The Profession Is For You
While the real estate tycoons that sit in their ivory tower don’t get their hands dirty now, there was a time when that’s all they did. A big part of saving money when investing in properties is to do all the maintenance work themselves. Yes, it is easier to call someone out to do it for you, but this will eat into any funds you may have, and right at the start, you have to conserve any money to invest back into the property. Part of the whole process is being a landlord, and, likewise, are you happy to have tenants call you potentially at any hour during the night? It is like having another job, and if you already work full-time, is it something you can commit to? It’s a learning curve as you figure out what works best for you and what doesn’t, but you need to be sure that it is a profession that you can a) fit around your existing commitments and b) you can actually commit to everything that comes with it.
How Are The Funds?
It’s important to look at your finances first before investing in any type of property. Do you have any debt outstanding? If so, even something like student loans, medical bills, or you have children about to attend college, you might want to think twice if it’s something you can afford. The cost you will put into your property, even just from the purchasing perspective, let alone if you decide to make changes to the property, will impact on your bank balance. And it’s important to remember that an investment property requires a bigger down payment than a property that is owner-occupied. Usually, it’s 3% you would put down on a home to live in, but for an investment property, it can be much higher. As mortgage insurance isn’t available on rental properties, the down payment has to be at least 20%! The approval requirements are far stricter than an owner-occupied property too.
Look At Where You Want To Invest
Did you look at a home that was on sale and think that it looked perfect because it was so cheap and hardly needed any work done to it? The real reason it’s so cheap is probably because it wasn’t in a good area. Before making sure that you want to purchase a property, you need to research what the area is like. Sometimes you can get a feeling from a place, but instincts can be wrong! The best approach is to look at the crime rates by going to the local library or contacting the local authority. You could even go to the police to get crime statistics. Looking for things like vandalism needs to be on your list of priorities because that will be a big cost for you if it is something that ranks high on the stats, you will be paying out every couple of months to insurance companies or to replace windows. Over time you’ll realize that the home wasn’t the nest egg you were banking on.
What Type Of Property Do You Want?
This needs to be a factor too because based on your funds, you might be better springing for a condo than a 6-bedroom mini mansion. Areas, where condos tend to be located, are quieter and attract a certain type of tenant, i.e. older people or retirees. As a result, even though you may think that your returns will be low, you may have a lot less hassle overall because having an old age pensioner as a tenant will mean a lot less bartering and disagreements. And they will be much more likely to be model tenants who will pay on time! If you want to purchase a larger property with the idea of flipping it, then you had better know a contractor who will do it for cheap or you need to be very handy with a toolbox! You are better off going for a home that is priced below the market value that only requires a handful of minor repairs. Your cost overall will be much cheaper.
Do The Math!
For individual property investors, you should aim to set a goal of 10% returns, with maintenance costs at 1% of the value of the property. And don’t forget to factor in insurance, taxes, and expenses that can amass over the course of a year, like pest control. Your operating expenses should be between 35% and 80% of your operating income; and if you invest that money into shares or stocks, you should aim to get around 6% in your first year of being a landlord.
It’s all facts and figures, but at the end of the day, a property should be what you deem to be a worthwhile investment. By factoring in all of the above information, your first property needs to be a smart move, and so many people are opting for the house flip method because it’s cheap. But if you do the math and think about what you want out of your property, the rest will fall in line. If you decide that it’s for you, then it’s time to press on and hopefully start off a new career in real estate!

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