GUEST POST: 4 THINGS THAT NEED YOUR FOCUS WHEN YOU BUY YOUR FIRST INVESTMENT PROPERTY
This week we have a guest post from Katie Conroy from Advice Mine
Buying your first investment property can be an exciting experience. You’re looking at a potentially lucrative addition to your financial portfolio. Moreover, you stand to learn a thing or two about real estate investing and managing a rental property, which can be valuable later, should you choose to acquire more investment properties. But of course, how successful you are will depend on the choices you make, which is why you’ll undoubtedly want to make sure that you do every step of the process right. So let’s go ahead and examine the elements that you need to focus on.
THE NUMBERS
Before buying investment property, you have to be sure that you can actually afford it. While this might seem like common sense, it’s actually not rare for people to buy properties that they can’t afford. Be wary of taking on additional debt, especially when your objective is to grow wealth.
For this reason, it’s important to assess your purchasing power. As a rule, you’ll want to have the majority—if not all—of the financial prerequisites in buying a property on hand, such as sufficient down payment, a good credit score, and a passable debt-to-income ratio. It’s also a good idea to get mortgage preapproval so you’ll know right off the bat if you can, in fact, go the distance with your investment.
THE PROPERTY YOU CHOOSE
Next, you’ll want to choose your property—not just any property, for that matter, but the one with the most earning potential. When it comes to investment property, location is a priority as tenants, long-term or otherwise, will always prefer homes that are close to myriad conveniences, like public transportation, schools, supermarkets, cafes, and more.
The condition of the property matters, too. House-flipping shows make fixer-uppers seem romantic, but for novices, these can be more trouble than they’re worth. It goes without saying that when considering an older, standing property for purchase, you really have to know what you’re getting yourself into.
THE IMPROVEMENTS YOU MAKE
If you do opt for a fixer-upper—or even a viable property in good condition—it’s only good practice to spring for a home inspection (inspections average $358 nationally). This will safeguard your investment in more ways than one as, more often than not, property damage cannot be seen by the naked eye. A comprehensive inspection will not only uncover possible problems, but you can use these to negotiate a better deal with the seller.
It’s also likely that you’ll want to make improvements on a property, anyway, if only to make it more compelling as a rental. These will run the gamut from updating dated fixtures and systems to cosmetic improvements. As a rule of thumb, you’ll want the seller to handle major repairs on damaged systems and focus on the cosmetic stuff yourself. It’s more than wise to set a budget for home improvements to ensure that you don’t break the bank.
No doubt, among the cheapest yet most impactful improvements you can make is installing carpeting. This is because carpeting is among the most cost-effective flooring options there is. You can even save on carpet installation further by going the DIY route and removing old flooring yourself, shopping at big-box home stores for materials, and using easy-to-install carpet tiles (carpet tiles typically cost $1 - $2 per square foot).
HOW THE PROPERTY IS MANAGED
Finally, with a ready rental, you need to manage it properly so that it’s always occupied and generating income, or getting leads when it’s not. Moreover, you also have to consider cleaning, maintenance, bookkeeping, and other such tasks. You can, of course, do these yourself. However, hiring a professional property management company is also a viable course of action, if you can’t handle any more on your plate. Either way, know that much of your rental’s success hinges heavily on how well it is managed.
Investing in a rental with the goal of making it profitable is a process, and it will serve you well to undertake each step with care. Keep a firm eye on your objectives, and when the profits start rolling in, you’ll know you’ve done well.