A Lucrative Living: Tips for Buying Investment Property
Investment property is a great way to earn passive income.
The main purpose of buying an investment property is to earn money without having to work at all, and it allows you to do just that.
It is a property that you can legally rent out to tenants, which then allows you to receive income from their rent. There are some things to consider before investing, such as expenses and various risks.
Continue reading to about some tips before buying into an investment property.
Table of Contents
- 1 Think About It For A While
- 2 Pay Remaining Debt Before Buying
- 3 Be Aware of the Down Payment
- 4 Avoid A Property That Requires Renovation
- 5 Calculate Your Expenses
- 6 Investment Property Risks and Rewards
- 7 How to Find Investment Properties
- 8 Websites
- 9 Outbound Marketing
- 10 If You’re Ready, Go For It
Think About It For A While
It’s important when investing in any sort of property that you are sure of what you’re getting yourself into. When you are buying your first rental property, you need to make sure that the property will do well for you.
Think about your finances and your own ability to take care of things should something come up. Since you will be investing in your first one, chances are that you won’t have too much money left over to pay someone to fix problems.
Pay Remaining Debt Before Buying
One problem that many startup landlords run into is that their debt catches up to them. Buying a property requires sinking in a lot of cash, and you may be setting yourself up for failure if you already have debt.
Because you have any debt in the first place, it shows that you don’t have sufficient cash to make big purchases. Saving up money to buy a property will require much more time because you still owe a debt to someone else.
There is also a big risk that your business could fail. If things don’t go as planned, you will be short on a ton of money and no passive income. Not paying the debt that you owe because you have to pay your own rent will tank your credit.
Be Aware of the Down Payment
The main difference between buying a personal home and investment properties is that the down payment is usually a lot larger than a personal home one. It’s normal for investment properties to have a down payment of ~20%.
Not knowing about this ahead of time can leave you upset when you find out you don’t have the extra money to cover the down payment. Again, this shouldn’t be a problem because you should have saved a lot of money beforehand.
Avoid A Property That Requires Renovation
Renting out a house for the first time can be both exciting and terrifying at the same time. If you would like to avoid a lot of time and money, and start earning passive income as soon as possible, avoid a property with a ton of damages.
Many people that are new to the investment property industry don’t really think about the potential fees they’ll have to pay for repairs. When you’re buying your first property, you want to save as much money as possible.
Be sure to really look into the property and examine everything. If you don’t have the skills to repair damages or renovate, you will end up spending thousands of dollars for a crew to fix the property up.
Calculate Your Expenses
One of the most important things any property owner can do is calculating their expenses. As the owner of a business, you need to keep track of the money that is coming in and going out.
You need to calculate every penny of income from rent and outcome from things like fixing damages and paying employees. You can expect to pay anywhere around 50% to operate your business, depending on how many things you pay.
Investment Property Risks and Rewards
Because investment property is a business, there are a plethora of risks and rewards that you can get from them. Remember, when starting a business, you must put in money to receive money.
Here are some risks that come with any rental property:
- Poor tenants can lead to damages or give you a hard time.
- You may not receive enough rental income to pay the mortgage.
- You cannot sell a portion of the property, you have to sell it all.
- Without a tenant, you will be forced to pay all expenses out of pocket.
- You have to spend a lot of money to buy an investment property.
These risks are pretty big when it comes to a rental property, but there is no reward without risk. Here are some rewards that come with rental properties:
- Passive income. If your property is a success, you will earn a lot of money while hardly working.
- Just like stocks, you can “earn income” as your property value raises.
- Many factors affect a property’s value. If a big business moves into town, expect the value of your property to go up as new people want to move in for job opportunities.
- Real estate value doesn’t fluctuate as extremely as stocks do. Don’t expect to lose a million dollars overnight.
How to Find Investment Properties
When you have decided that you would like to invest in a rental property, there are many ways to find listings:
The best place to buy investment property is on the internet. If you do a quick search on google, you can find several sites in which you can browse a catalog of investment properties for sale.
If you are old-fashion, the best place to buy rental property is the newspaper. The newspaper is a classic way to find out about investment properties, but the problem with newspapers is that they’re not being used as much anymore.
Outbound marketing is a term that’s used to describe putting yourself out there to have sellers come to you. Advertising that you are seeking to buy a rental property will make sellers come to you with offers.
If You’re Ready, Go For It
After going over all of the tips listed, think about your financial situation and management skills. If you have the money and think that you’re ready to buy an investment property, then the only thing stopping you is yourself.