The of the old investment adage(s) for investment properties are to buy low and sell high. Also, to buy a real estate property where you can raise the rents after fixing up. Also, buy the least expensive property in a more expensive area. Look for cosmetic upgrades (paint, landscaping) and not bathroom and kitchen remodels.
Things to be prepared for when buying an investment property
There are some other things to consider. Purchasing investment property is often seen as a ticket to a steady, passive income stream—and for some astute (and lucky) investors, a path to substantial wealth.
While buying a property that will yield rental income and/or a much higher selling price in the future is often a sound investment, it may present hurdles that threaten to strain your time and resources. Therefore, if you are thinking about entering the exciting and risky world of real estate investing, it is crucial to take into account various factors. Here are some things to consider:
1. You will likely need a significant amount of cash before buying an investment property. Mortgage insurance is generally unavailable if you are not planning to live in the home, so be prepared for a down payment of at least 20 percent. Loan costs may also be higher for investment properties. In addition, you might need to make repairs before renting the property to tenants, so you should have enough of a financial cushion to handle these projects while also paying the mortgage, utilities, taxes, and other costs.
2. Be wary of properties that need significant remodeling. Though a plethora of TV shows make major home remodels look easy, in reality, “fixer-uppers” are the downfall of many people who are new to investing in real estate. Properties that were poorly maintained often have problems that may not be readily apparent—and may require substantial time and money to resolve. Therefore, unless you are adept at home renovations or you paid a rock-bottom price, you may yield a stronger return on investment by seeking out properties that need only minor repairs and are available at below-market rates.
3. It’s probably best to start small. While buying an apartment building may seem like a lucrative opportunity, such an ambitious undertaking could become overwhelming—and possibly a financial disaster—for inexperienced investors. To gauge your ability to manage an investment property, start with a single home or duplex. This will give you a better idea of the costs, time commitment, and unexpected challenges that investment properties typically present—and how well you can handle them.
4. You will need to deal with tenant problems. Unless you pay a property manager to handle issues with tenants—which will detract from your profitability—you will need to act as a landlord to the people who rent your investment property. This means that you will need a process for screening tenants, collecting rents and penalizing late payments, checking in to ensure that the property is being maintained in sound condition, fielding complaints from neighbors about your tenants (or vice versa), responding to maintenance requests in a timely manner, and more. Before buying an investment property, consider whether you are willing and able to handle these issues fairly and consistently.
5. Explore the option of real estate investment trusts (REITs). If you would like to reap the benefits of rental income but the prospect of managing an investment property seems daunting, an REIT may be right for you. Investing in an REIT may be done easily through a broker. Your money will be pooled with that of other investors for the trust to purchase and lease property. REITs often yield stronger returns than you would gain from managing investment property on your own.
Partial Sources: money.usnews.com & thesimpledollar.com
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