If you intend to venture into property investing, there are a few things you need to know. Investing in real estate properties can be a terrific way to create income and accumulate wealth over time, but getting started can be tricky.
To put it another way, it’s not something you need to take lightly, yet for some reason, lots of individuals who dream of making millions with real estate do. If you believe you can just go out and buy a property somewhere, put some renters in to pay the mortgage, and strike a good deal, you’re misleading yourself.
The truth is that most property investors fail because they lack the required mindset when buying an investment property. So, if you want to surpass the average property investor, this is the guide for you.
Seven Basic Steps to Follow When Buying an Investment Property
Before you get to find investment properties, there are certain steps you need to follow to make the process as smooth as possible. Let’s have a look at them below:
1. Decide Whether Investing in Real Estate Through Investment Property Is the Best Option
Buying an investment property isn’t for everyone, and it’s certainly not the only way to invest in real estate. So, before you go out shopping for your first investment property, think about if this is the best way for you to get started in the fascinating world of real estate investing.
On the plus side, buying rental properties is a great way to acquire both income and long-term appreciation, and investment properties can deliver extraordinary returns because of the relatively easy and safe use of leverage.
2. Gather Your Team
As a newbie real estate investor, it’s essential to surround yourself with a top-notch team of professionals. It all starts with a local real estate agent who has worked with investors before.
To put it simply, buying a rental income property isn’t the same as buying a primary residence, so be sure the team you hire knows what they’re doing. You’ll also need an excellent real estate attorney, insurance agent, home inspector, appraiser, and other specialists, but your real estate agent can usually refer you to them.
In essence, real estate investors are only as good as the professionals they surround themselves with.
3. Decide What You Want to Buy and the Location
It’s a good idea to identify your investment goals before moving on with the step. Do you want a single-family home or a multi-unit property, for example? Is it possible that the low-maintenance aspect of a condo is more to your liking? A multifamily property generates more cash flow, but single-family homes offer higher equity gain potential, especially in hot real estate markets.
Geographical location is also crucial. Consider narrowing your search to a specific area. You might be wondering “How do I find investment properties near me? While you’re searching for one, it’d be best to check investment properties in your local market.
Determine how much effort you’re willing to put in as well. The best value is usually found in properties that require some work, but this adds to the workload for you.
4. Make Sure the Property Is Well-Financed
Financing investment property isn’t the same as financing a primary residence. Since lenders often consider investment property mortgages to be a greater risk than loans for owner-occupied properties, expect to have outstanding qualifications.
With that in mind, you have a few distinct options when it comes to investment property financing. It’s a good idea to have a preapproval for a loan or have already secured a finance source before you start looking at properties, regardless of which type you choose.
5. Learn How to Properly Calculate Cash Flow
One of the most fundamental things for prospective real estate investors to grasp is cash flow. You could receive a seemingly good deal on investment property, but if your ownership costs exceed the rent it generates, it will deplete your bank account over time.
As a result, it’s crucial to ascertain whether a potential investment property would generate positive cash flow from the start. In the real world, your property will be vacant from time to time, and you’ll have to pay for maintenance. When estimating cash flow, keep all of that in mind.
6. Choose a Property to Purchase
Now it’s time to take action. Once you’ve looked at the housing prices and selected what type of property you want to buy, figured out how you’ll pay for it, put together a team, and learned how to identify cash-flowing rental properties, it means you’re ready to start shopping for properties.
When buying an investment property as an investor, there are several things to keep in mind. The number of bedrooms, school district, and proximity to interstate roads are all key considerations. Concentrate on those instead of whether or not you like the property.
It’s time to make an offer and negotiate a purchase price when you’ve found a rental property that fits your needs. Your real estate agent can assist you in navigating this procedure as well as the time between having a contract accepted and closing on the property.
7. Decide Whether or Not You Want to Engage a Property Manager
Whether or not you want to become a landlord is one of the most crucial decisions you’ll have to make with your first investment property. You have the option of managing your property yourself or hiring a property management firm to do so for you.
The cost of hiring a property manager can be expensive. Property managers often charge between eight and ten percent of the total rent received. If your property doesn’t have lots of cash flow, this can cut into your profit margin.
However, you need to think about what you get in return for your property management charge. Your property manager will utilize their skills to effectively price your home so that it gets the most amount of rent possible. In many circumstances, this alone is sufficient to justify the cost.
There you have it! That draws the curtain on everything you need to know about buying an investment property. This guide to investing in a rental property for beginners will keep you afloat as you proceed. However, keep your expectations in check. Investment property will not just yield a significant monthly paycheck right away, and choosing the wrong property could be disastrous.
Nonetheless, investment properties can be a profitable option to invest in real estate. Consider working with an experienced real estate professional for your first investment property.