Your First Investment Property Awaits (But Do Your Research First)

Real Estate Agent with The Weiland Group of Keller Williams Realty

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 Your First Investment Awaits (But Do Your Research First)

Real estate has always been seen as a great investment. Historically, residential properties gain in value thanks to long-term property appreciation and improvements/maintenance. If you have never purchased investment property before, it might seem like a daunting endeavor, but it doesn’t have to be.

Here is some information for novice investors about what to consider and how to go about buying an investment property.

Understanding Real Estate

Before launching your own investment initiative, you should research the real estate market. Look at trends in your chosen area over the last 10 to 20 years. You must understand that, like all economic movements, real estate has ebbs and flows. It is not always a steady uphill climb to profits.

Next, Money Under 30 suggests evaluating potential risks. These include negative cash flow, unexpected repair bills due to poor tenants, and high vacancy rates. Of course, these downsides are applicable only to rental properties. If you’re buying a home to flip, there are other potential costs to keep in mind. For one, you are responsible for making your property livable and profitable. This means you have to balance your budget with strategic repairs and upgrades. Something else to think about is if you buy real estate at the peak of the market and make improvements, it may be difficult to break even if the market begins to turn downward.

When you’re looking to get into the real estate market with as little money as possible, you do have options. One option is to consider foreclosures or estate sale properties. A foreclosure is a property where ownership has returned to the bank. They’re sold for market value which will often be lower priced than “move-in ready” houses.  However, they may need extensive repairs.  In addition, a property listed as part of an estate is one where the owner might have passed away. These are often sold by the estate during the probate process and will likely not have undergone any updates or renovations.  The estate is frequently motivated to dispose of the property quickly and can result in a great value for the right buyer.

The Process

Finding an investment home isn’t that different from buying your first family home. But there are some differences you’ll need to be aware of. The first of these is financing. You will likely need to be preapproved before you make any kind of an offer. This is because financing a second property is a bit harder than a home in which you live. Rocket HQ explains that a credit score of at least 620 and a down payment of up to 25% of the purchase price. But, a higher credit score, 720 or above, means you may be able to qualify for a lower down payment on a single-unit property.

Other steps to take are to:

  • Carefully calculate your potential ROI
  • Determine needed features most attractive to the market; number of bedrooms, proximity to schools, attractions, and other points of interest
  • Decide if you have time to manage a rental yourself
  • Find out how to form a limited liability company in Minnesota
  • Understand potential taxes and other expenses
  • Partner with a skilled real estate agent
  • Know that investment or flip real estate does not have short-term liquidity – if you need access to short-term cash later, it can take months to access.

In many cases, investing in your first real estate property is a great way to build your portfolio and create generational wealth. But, you need to do some research, and there’s a lot of work involved in the process. If you are ready to take on some calculated risk and aren’t afraid of a complex project, then buying an investment property can result in a worthwhile return for you.

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello and thanks for sharing this great information with us here in the Rain.  Make it a great day!

May 31, 2022 11:43 AM
The Weiland Group of Keller Williams Realty
The Weiland Group of Keller Williams Realty - Minneapolis, MN

Thank you Will!

Jun 01, 2022 02:19 PM