What Strategies Should You Follow When Buying an Investment Property?
Getting involved in real property investment for the first time might be overwhelming. You watch plenty of videos or read a lot of books about investment property, and you think you have sufficient knowledge about it. However, everything you learn is not effective if you will not apply them to experience. And having a strategic plan in investing will help you build your roadmap to your goals – earn passive income.
When it comes to strategies, it is important to study the key areas of real property investment. Here are the essential strategies that you should follow when buying an investment property:
1. Imagine Yourself Being the Landlord
Can you manage to deal with different kinds of people as your tenants? Are you versatile enough in handling repairs on your property? Of course, you don't have to be an expert in repairs and maintenance. But knowing how to use a toolbox when an emergency repair occurs will reduce your expenses and save you from the hassle.
2. Reduce Personal Debts
Accumulated personal liabilities such as student loans or medical bills will be a burden in starting property investments. Cut your debts or better to settle them first before investing. This will prevent you carry debts in your investment portfolio.
3. Prepare a Sufficient Down Payment
It's better to be financially prepared when it comes to investing. Since investment properties require a hefty amount of down payment, securing it will help your financial planning at ease. How much is your budget to acquire a property? If you know how much you need, you can arrange your funding properly before investing.
4. Look for a Suitable Location
Location is one of the important factors in investment property. When looking for a location, make sure that the area has the potential for development. Research and investigate first the location of the property. A good location is close to schools, various amenities, and has an amicable neighbourhood.
5. Assess Your Funding
Do you have sufficient cash to buy a rental property? Or you prefer financing for your property investment? Whichever you choose, you have to assess your funding. Buying in cash may give you positive cash flow at the first few years of your operation. But it won't provide higher annual returns unlike with financing.
6. Consider the Interest Rates
If you choose to finance your investment property, you have to be aware of the interest rates included. Research about the loans appropriate for you. Then choose the type of financing with the lowest interest rates, so your mortgage payments won't significantly affect your earnings.
7. Estimate Your Returns and Costs
Build your financial plan for your investment property by calculating your projected returns and costs. When you have the proper estimates, you can easily create a budget for your necessary financial actions. You can start at calculating your projected costs by including your operating expenses. Then create your margins for easy computation of your estimated returns.
8. Secure Your Investment with Insurance
For your investment, it's always advisable to protect it with insurance. Insurance will save you and your property financially from potential risks such as damage, losses, or growing debts. Consider getting landlord insurance as well. This kind of insurance will protect you from unexpected property damage or rental loss.
9. Create Contingency Funds
You can't always accurately project your investment's cash flow. There will be a time that you'll encounter emergencies requiring you to pull out money from your account. To prepare for this, always save enough contingency funds. Having contingency funds will give you peace of mind that you are always financially ready.
10. Don't Get a Property from a Fixer-Upper
Fixer-uppers sell most properties at a bargain price. When the price is lower than your estimated purchase price, then you should be skeptical about its quality. Unless you have a contractor offering cheap services, improvements and repairs will never be your problem.
11. Understand Your State or Locale's Landlord-Tenant Laws
Knowing the rules and policies within the location of your property will prevent you from having legal issues in the future. It is important to be aware of your legal obligations such as your tenants' rights, eviction rules, or fair housing.