Investment Properties 101:
Dos and Don’ts
At Beachview Realty, we straddle the worlds of rental properties and home sales. This puts us in a unique position to observe what makes a good investment property and what you should look for in a real estate investment. Whether you’re considering your first investment property or you’re a seasoned investor, we’ve put together a quick guide of dos and don’ts for your next real estate endeavor.
Don’t follow your emotions
When you’re in the market for an investment property, don’t let your emotions lead you. You’re not shopping for a home for yourself but a property that will perform in the market for you. “Think of it as purely a business investment and logically negotiate to get the best possible price.” By removing yourself emotionally, you’ll be more successful in choosing a property that will be easy to rent out and consistently bring in the maximum amount of income — not to mention, you’ll avoid overpaying when you make an offer.
You’ll need a 20% down payment
Mortgage insurance is not applicable to an investment property. Instead of the 3% down payment you might be able to put down for your primary house, you’ll need a 20% downpayment for an investment property. There may also be stricter approval processes. Keep all this in mind as you shop and make sure you have discussed your goals with your banker before you set out.
Consider your partners carefully
Chances are you’ll need partners to help you renovate, maintain, rent, clean, and stage your investment property — you may even need a partner to help you purchase it. Owning and renting an investment property will essentially become a small business for you. You need to approach it as such and seek out dedicated professionals with the resources to maintain your property at its best. One cautionary note from Forbes is: “Many people consider partnering up with their friends instead of talking an investment loan to start in the real estate business. First-time investors need to carefully consider many factors while choosing partners, such as how comfortable you are with them and the implications of a partnership agreement.”
Fixer-Uppers are not good investments.
Unless you have a reality show that pays you to flip houses, you should avoid buying a fixer-upper as an investment. Flipping houses itself is a short-run proposition that requires an entirely different market strategy than a long-term investment. If you’re in this for the long haul — especially if this is your first investment property — find a place that only needs minor repairs or upgrades.
Location, Location, Location
Everyone knows this saying, but it truly can’t be underestimated; location is that critical. An investment property continues to appreciate only if it is in the right spot for that market at that time. Remember: an investment property won’t always need to tick the same boxes as a family home, but this is the one box every investment property does need to tick. Whether you’re considering long-term or short-term renters, your property should be in a prime location that will consistently foster competition among them.
Certainly, when you’re considering your first investment property, you don’t want to take on all the upkeep of a large house while trying to manage the business of renting it.
US News gives this advice: “Starting small – purchasing a single apartment, condo or duplex, for example – can help you get grounded in the idea of investing in real estate and decide whether it’s really the right step for you.”
Starting with an apartment, condo, or small house helps you learn about the market and the operating expenses (Investopedia suggests calculating 50% of your income for expenses) before you take on more.
Are you ready to invest?
Buying an investment property is a big leap, but it can pay off in dividends. If you feel ready, find a broker with experience in investment properties, then have a conversation with them about what you’re looking for and what your short and long-term goals are. If you’re not sure where to start, or if you have questions along the way, our investment specialists are here to help.
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