January 10, 2018 by realestateresource
Things to Consider when Purchasing an Investment Property
Purchasing an investment property can be a great way of creating wealth. You can also start to earn a decent monthly income in the form of rent through this property. But buying a rental property is different from investing in the stock of a blue chip company. There are many things that you have to keep in mind from selection of the right property to its maintenance and then screening the tenants. You should also have sufficient savings to be able to pay the monthly installments in case rental income drops or stops for some time. You should do your research into the profitability of the investment before buying an investment property and partner with a knowledgeable agent!
1. Return on investment depends upon location
Location, Location, Location – This matters a lot when purchasing an investment property. The property should be located in an area that is close to all modern amenities. Buying a property in a remote area even if it is at a bargain price will not prove beneficial as you will find it hard to attract tenants. Check out not only the median rents in the area but also the resale value of the property. You do not want to buy a property that does not appreciate in value over time, do you? Find out the rental yield and keep the 1% formula in your mind. Net rental income from the property should be more than 1% of the value of the property. Buy your investment property in an area where median rents are higher than other areas of the city. Finally, buy investment property in an area that is close to where you live so that you can quickly and easily reach your property unless you are prepared to hire a credible Management Company.
2. Condition of property is also important
Look for attractive features when purchasing an investment property. The property should be appealing to a large number of people looking for a home on rent. Most people prefer a rented home in an area having excellent quality schools for best education of their kids. Families look for homes with locked up garages and homes having second bathrooms. Do your homework when looking at properties for investment. If it is an apartment building, go for one that is appealing to not just families but also singles and retirees. This way you can rest assured of low vacancy rates throughout the year.
You should not buy a property in a hurry. If you are getting a property at much less than the market value, it is better to carry out a close inspection of the property to know about its actual condition. You can buy a fixer upper also but you should be aware of the time and money it would take to be repaired. Be prepared to pay the monthly installments out of your own pocket until the property has been renovated and it is ready for the tenants to move in.
3. Look at the expenses
In addition to minor repairs here and there, you have to shoulder the responsibility of property taxes. Find out the property tax rates, HOA fees, CDD fees, etc. in the area before purchasing an investment property. This is because high property tax and running costs will eat into your rental income. In some places, authorities charge higher tax from investors than owners who live in their properties.
Finally, you must take a close look at your finances. Find out how much money you can borrow and how much of the down payment you can put forward. In general, you should have enough money in your savings account to not only cover for the down payment and closing costs but also for undertaking repairs in the property to make it attractive for the potential tenants.
Thanks for reading!