The Best Advice for Making Your First Investment Property a Success

Real estate across the country doesn’t seem to be showing any signs of slowing down. This is good news for investors who’ve waited to make their first purchase. However, just because you think you can turn a profit does not mean you should go into the process blindly, which can be a costly mistake. Fortunately, you live in the digital age, and you have access to virtually unlimited advice to help you make the best decision. Consider the following tips:


It’s almost always best to pay down personal debt prior to buying an investment property.


Many experienced investors carry debt. It’s often part of a healthy investment portfolio. But the average buyer should keep their books clean. If you are currently holding onto unpaid medical bills or student loans or are struggling to make your minimum credit card payment each month, you are probably better off putting your money toward these expenses before you become a landlord.


Most banks want to know that you are financially stable, and that means you’ll need to put money down.


Mortgage lenders look at a primary residence differently than an investment property. There are many loans available for home purchases starting around 3 percent down. But because an investment is more of a risk than a liability, you’re going to have to come up with 20 percent of the purchase price at closing. Once your debt is paid off, it’s time to start saving money for the down payment. Bank of America explains that this starts by recording your expenses. You’ll then want to set your savings goal, figure out where you can cut unnecessary spending, and prioritize where your money goes.


With a little luck, you can find a short sale property, which can help you get more for your money.


Redfin explains that a short sale home is one that is being sold for less than its current mortgage balance. Typically, this happens when a buyer purchases a home, and then its value drops to considerably less than they owe. The bank takes a loss just to move it off of their books. There are pros and cons to buying this way, with initial cost being the biggest benefit. While buying a short sale property is usually less risky than going the foreclosure route, the home is sold as-is, meaning you might have major repairs to make. It is also a lengthy process, and you cannot begin making any necessary repairs until closing.


Not all homes are alike, and location plays a key role in how much you can charge for rent.


In early 2019, HousingWire published a list of the average rent across all 50 states on a one-bedroom dwelling. The numbers are gapped with Arkansas renting for an average of $582, while the same style of property in DC would lease for more than $2,300 per month. Prices also change from city to city, so you want to look at school zones, crime rates, and other factors that might encourage a renter to spend more.


It is not always cheaper to manage your own property.


There is a lot more to managing a rental property than just finding tenants and signing a lease. For one thing, it’s a legal process. You cannot discriminate against protected classes – religion, sexual orientation, race, etc. – but you can approve or deny a renter based on their credit score, rental history, and employment status. Next, managing your rental requires constant attention, and you’ll be expected to react to issues, such as plumbing leaks and pest problems, with haste. Although you may save month-to-month by handling these tasks yourself, many new investors find that contracting with a property management company saves them in the long run since issues are handled faster. They also run less of a risk of being sued for discriminatory practices.


If you’re still interested in becoming a real estate mogul, now is a great time to begin the journey. But remember, do your research first. The more knowledge you have, the richer the rewards can be.



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