Investment properties have historically proven to be an excellent way to bring in extra monthly income and accrue wealth, due to appreciation of the home.
If you’re thinking about buying a house as an investment, there are several steps you can take to hit it out of the ballpark on your first try. Here is a closer look at how to get started, brought to you by realtor Ed Constable.
Determine Your Budget
The first step is to look at your finances to determine how much you can afford to spend on the property. Ideally, you should use extra available funds from your savings or those you want to reallocate from another investment source that isn’t giving you the return you expected.
Once you come up with your total, subtract enough out to give you a financial cushion to cover any unexpected expenses that may pop up and cover your initial operating expenses.
Get Financing
If you don’t have cash available for the purchase, you need to talk to a couple of lenders to find out what kind of documentation you need to qualify for a loan. Your goal is to get the lowest interest rate possible, so it pays to shop around.
A conventional mortgage is doable for an investment property with options for fixed or adjustable rates. Do all you can to provide a 20 percent down payment so you won’t be charged mortgage insurance.
Once you are approved for a loan with terms that work for you and your household budget, ask for a prequalification letter to prove to sellers that you have the financing needed to buy the property and are serious about the purchase.
Find a Local Real Estate Agent
With your financing and budget in place, you are ready to shop for the right investment property. HomeLight notes that it’s a wise move to find an experienced real estate agent who knows the local market you want to buy in and who is investor-friendly.
He or she knows the hot neighborhoods for rentals and those to avoid. An agent also has access to homes not yet on the market and can get you in for a tour before the listing hits the MLS.
Your realtor also knows the true value of the property you pick and will advise you on the best price to offer for the home. An agent like Ed Constable is your trusted ally from the first look at available houses all the way through to your final closing.
Hire a Property Manager
Once you have purchased your first investment house, HGTV suggests giving serious consideration to hiring a manager to handle the rental for you.
Unless you have a lot of spare time on your hands, are an excellent handyman, and are familiar with landlord-tenant laws, a professional manager is worth the investment. Some of the benefits include:
- Screening the tenants
- Deciding on a realistic rental rate
- Making necessary improvements
- Marketing your property
- Handling rent collection
- Advising you on tax deductions
- Keeping up with maintenance
Leaving these details to a professional ensures they are done correctly and in compliance with all regulations. It also frees up your time to search for your next investment home.
In addition to a property manager, investing in a smart home security system goes a long way to ensure that the home is monitored at all times.
Even when your renters aren’t at the residence, a smart security system allows you to check in from your computer or smartphone day or night, and if there is any out-of-the-ordinary activity you’ll be alerted right away.
Such a system also helps attract renters, who value the added TLC.
Successfully jumping into the lucrative investment home business is very possible on your first try. Following these steps will help you make wise decisions that should pay off for you on your future properties as well.