What To Know About Buying An Investment Property
Updated: Oct 23, 2022
Intro to Buying an Investment Property
You’ve probably heard how crazy the Real Estate Market has been over the past couple of years, and that’s no different for rental properties. In fact, many people are looking into purchasing Investment Properties for the first time. Before you start counting up your rental income though, it’s important to note just how different this part of the Real Estate Market is compared to traditional/residential purchases. From property upkeep to the financing for new purchases, let’s take a look at the basics of What to Know About Buying an Investment Property!
Will I Make A Good Landlord?
The first thing you’ll want to do when considering entering the Investment Property Market is to decide if you’ll make a great landlord. This requires taking the time to get your own affairs in order, including paying off some personal debt & acquiring capital for a down payment. A majority of rental property mortgages require a 20% down payment & a credit score of 620. The next thing you’ll want to ask yourself is “Do I have the time to manage rental properties?” Between choosing the right property, maintenance & renovations, prepping the units, & finding reliable tenants, you’ll spend a surprising amount of time just managing 1 unit let alone a whole portfolio. That said, we would suggest hiring Property Managers & a Maintenance team if you really want to be successful in the Investment Property Market. Possibly the most overlooked aspect of owning rental properties is that all units need to adhere to local regulations for the quality & condition of the entire property including interior & exterior features. Although you may start out by managing your rentals on your own, hiring a team of experts to assist you in providing quality homes to renters will definitely make a difference in your business.
Before You Search For Investment Property….
“I know I’ll be a great landlord, my properties will be high-quality, & the finances work for everyone. Now what?” Before you start searching for your first property, take the time to decide which neighborhoods you’d like to own property in & what kind of property you’re looking for. Many experts recommend purchasing your first rental properties in a neighborhood that is in the early stages of being reinvigorated and somewhere in the middle when it comes to quality. This is usually the best price point & requires moderate work to make the property profitable. It’s important to note that there’s a big difference between owning a pure rental property & a property that’s also your residence when reviewing the financial aspects, so make sure you determine which is best for you. Additionally, most mortgage companies can only offer financing for up to a 4-plex while properties with more units may require investors to back your purchase. Make sure you meet with a Real Estate Agent who specializes in Investment Properties to help you with navigating these decisions.
Investment Costs vs. Rental Income
While purchasing a residential property is about finding a “home,” purchasing Investment Properties are all about the finances. Factoring in all of the taxes, repairs, ongoing maintenance, renovations, Property Managers, & all of the internal business expenses (like software) is no easy task. Another financial burden new Investment Property Owners need to consider is the Insurance & Legal obligations for rental properties that are specific to each city & state. Having sufficient coverage for the property is crucial in case of emergencies & you may want to build up a legal fund for worst-case scenarios. For new Investment Property Owners, one thing you should also consider is having an extra fund in case the rent doesn’t cover the mortgage in the beginning or if you have some issues renting the property out. In the end, utilizing management software can help to manage the workload & ultimately determine how viable the investment is, but you’ll still need to make a commitment to be successful. Although borrowing money is relatively cheap in 2021-2022, Investment Properties tend to have higher interest rates than those of a traditional mortgage. With all of these expenses, many industry experts recommend a 5-10% return on the investment to make it worth your time. After owning Investment Properties for a couple of years, you should be able to develop your own process (including an ROI estimator) to maximize your investment to return ratio.
Contact Grimm Realty Group - Investment Property Experts
With nearly 20 years of experience, Doug is excited to help new & experienced Investment Property Owners through every step of the process. From suggesting Property Management Software to guidance on types of funding, we work with you to ensure your needs & goals come to fruition. If you’re looking to sell an Investment Property, we can provide a Complimentary Market Analysis with a full Comp report, advice on repairs & upgrades, advice on timing the sale, & the quality of local competing properties.
Schedule a Zoom Meeting with Grimm Realty Group to discuss your Investment Property needs!
Agent & Investor Partnerships Sources:
Investopedia: How to Invest in Real Estate Rentals
Rocket Mortgages: What To Know About Buying An Investment Property
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