Key Tips to Buying an Investment Property
So, you’re thinking of trying your hand at real estate investing but curious if being a landlord is really the most lucrative path for you? Keep reading for key tips to help you decide.
Step 1: Deciding if you want to be a landlord: The first question to ask yourself before you even think about purchasing an investment property is, “how dedicated am I to be a landlord?” Landlords deal with a wide range of property and tenant related issues and you need to be able to tackle all of them. For instance, as a landlord, it is your responsibility to maintain the property for your tenants and this means tending to any repairs and updates the home may need. Ideally, having enough home repair knowledge to fix these issues yourself will save some money. Otherwise, you’ll have to hire professionals to get the job done for you, which may dip into your income. Be sure to weigh your options and decide what makes sense for you financially. Second, be prepared for the possibility of unruly tenants. In most cases and with the proper vetting, the odds are in your favour and you’ll wind up having a more than pleasant relationship with your tenants. In the unlikely case that a tenant may become contentious over time, as a landlord learning how to keep your cool, keep things professional and resolve any conflicts accordingly is key.
Evaluate Your Finances & Get a Down Payment: Before purchasing an investment property, you should first make sure you’re tackling this endeavor in good financial standing. Ask yourself if you can tackle the expenses behind becoming a real estate investor. Consider the following costs associated with purchasing an investment property (20% down payment, closing costs, repairs, mortgage carrying costs, homeowner’s insurance, maintenance costs, etc.). Also, ensure you have either liquidated your debt before purchasing the property or that you can still afford to make your debt payments after purchase. Once you’ve established your finances and credit are in good standing, work on getting a mortgage pre-approval. Remember that while sometimes taking risks can pay off, it is never a good idea to place yourself in a sticky situation financially. If you plan your purchase right, you’ll get the right payoff too!
Find an Investment Property: There are many factors to take into consideration when looking for the right investment property for you. Determine your potential return by getting to know the neighborhood and the kinds of properties you are interested in and what they have to offer. Is it in an area that’s being gentrified? What are the amenities? What are the educational districts and entertainment nearby? How low are the property taxes? There’s no harm in reaching out to other landlords and getting a feel for the rental market in the area. Next, ask yourself what kind of home you want to buy. Single family or multi-family residential? Is it a home you intend to fix up and flip for profit or a home that needs only minimal repair? Here is where the importance of your realtor will really come into play. Armed with a budget and with your bottom-line goal in mind, your realtor will present properties that align with your criteria and have potential for the highest return on investment. When you’ve found the property that’s right for you, your realtor will also negotiate on your behalf to close the deal.
To Hire a Property Manager or to Not Hire a Property Manager? You’ve closed the deal on your property and now it’s time to determine whether you want to hire a property manager or manage the property yourself. The property manager’s job is to be your foreman, monitoring and remedying issues that may arise with the property on your behalf. This is a great option for those who would like to take a less hands on approach, leaving the day-to-day maintenance and accountability to someone else. However, a property management company can be pricey and can leave a huge dent in your income, especially if you are new to the game and still building a profit. Evaluate your cash flow and determine if hiring a property manager is the right choice for you.
Prepare the Home for Now and the Future: Inspect the home before having your tenants move in and make sure it is move in ready. That means ensuring all appliances and fixtures are up to date, and that all utilities are in working order. Freshen things with a new coat of paint and think about renovations that can be made to the home that will make it easier to maintain throughout the years as tenants come and go (ex. replacing carpet with laminate flooring). Most important of all, put tenant safety first and always safeguard the home with multiple fire alarms and carbon monoxide detectors. When the home is prepared, it’s time to move onto the tenant selection process!
Screen Your Tenants: It’s vital to the success of your investment property that you take time screening all potential tenants thoroughly, despite how good of a first impression they make. To determine the best tenants, draw up a detailed application for vetting candidates. The application should ask important questions regarding the applicants’ tenant history and whether they have a criminal background. It’s also not unreasonable to request references and a credit check. Remember, you can’t always trust somebody’s word for it, especially when speaking to the reliability of tenants so be sure to never skip this step!
Now that you know the steps that go into purchasing and managing an investment property, you can start making it happen. Remember that with every new venture, there is always risk. That said, with a strategic plan, patience and growing experience, you have as good a chance as anyone at being a successful real estate investor! Feeling intimidated, I’m here to help guide you in the right direction! Call me today to get the conversation started.