Buying Your First Investment Property? Complete These Three Steps First

Article Courtesy of Katie Conroy :

From the steady stream of rental income you’ll generate each month to the equity you’ll build in your investment property, there are many great benefits to investing in real estate—specifically vacation rentals, condos, and single- or- multi-unit homes. In addition to the benefits of owning rental properties, however, there are plenty of drawbacks as well. Investment property ownership can be costly and time-consuming, as you’ll be responsible for making timely repairs and home improvements, collecting rent from tenants, and handling any potential legal issues as they arise.

Before investing in real estate, it’s important to consider all your options—as some decisions could easily turn your investment into a money pit. To keep your investment property from becoming more stressful and costly than it’s worth, read on!

1. Consider Your Options Carefully

To ensure that you’re making the best possible decisions as you purchase your first investment property, you’ll want to carefully consider the location, property type, and condition of the home. If you don’t take these factors into consideration when searching for a property, your investment

could easily become the money pit you’re trying to steer clear of. As such, it’s best to keep the following information in mind as you search for your first investment property:

  • According to Investopedia, the best locations for rental properties include cities with plenty of job growth, low vacancy rates, good quality schools, and lower rates of crime
  • The best types of investment properties for first-time real estate investors include condos and single-family homes, rather than multi-unit properties
  • When investing in a rental property, your purchase price shouldn’t exceed 12 times the amount of your anticipated annual rental income
  • You may get a better deal on the purchase of a fixer-upper, but you could also end up with a poorly maintained property that requires a number of major repairs and improvements before it’ll be safe to live in

In addition to these considerations, it’s important to explore all your financing options—including conventional, commercial, and home equity loans.

2. Pay for an Inspection

Next, you’ll need to budget for a property inspection—even if you think you have nothing to worry about. If you purchase a property without factoring in the cost of any major repairs, replacements, or renovations, you could unknowingly invest in an unsafe and unprofitable home.

During the home inspection, you’ll want the inspector to look at the property’s HVAC system, foundation, plumbing, grounds, and other areas like the roof and home exterior. If there’s a major issue with the furnace or air conditioning unit, for instance, you could use this information to negotiate with the sellers or walk away from the offer.

According to HomeAdvisor, on average, it costs about $4,345 to replace a furnace—but your expenses could be higher or lower depending on whether you need an electric, gas, or geothermal heating system. A gas furnace could cost as much as $10,000, while some electric units could cost as little as $1,000. However, knowing exactly what you’re getting into will help you to budget for these types of expenses if you choose to proceed with the sale.

3. Hire a Rental Management Company

Lastly, you’ll need to determine if you’re up for the responsibility of managing your first rental home without professional assistance. If you’re investing in a vacation home, for example, a rental management company will be especially useful to you—as you’ll receive benefits like regular cleanings and upkeep between guests. Additionally, the best agencies offer added benefits like updated vacation rental bookings and 24-hour customer support. With the best guest experience, your renters will be more likely to return again in the future and leave positive reviews that will drive new guests to your property.

While rental property ownership may be a real challenge at times, it can also be a stepping stone to investing in other types of properties like commercial real estate. Before investing in any type of rental home, however, it’s important to complete three these steps. Not only will they lead you to the right type of investment property, but they’ll help you to generate the most in rental income.


Thank you Katie Conroy for writing this article for Peer 2 Peer Real Estate.


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