When it is done right, real estate can be an extremely profitable business venture. But things are not always as easy as the home improvement shows make them out to be. There are a lot of details that you don’t see covered on television, and there is also a lot of hard work involved that could never fit into a single program.
If you are ready to put in the time, money, and effort, purchasing an investment property could be a successful undertaking for you this year. To help get you started on the right foot, following are a few questions to ask yourself as you navigate through this process.
Purchasing and renting an investment property is not something that you can work on for a little bit and then let it run on its own. In fact, you need to think about this as another job. If you are just starting out and tight on funds, you may need to handle all of the repairs and the rental process yourself. This means that you will be in charge of things like repairing a leaky faucet, replacing the flooring, screening potential tenants, and collecting rent.
If you simply do not have the time or expertise to handle these matters, you also have the option to hire a rental property management company. The company that you hire will be responsible for handling maintenance issues, determining the rental rate, marketing the property, sorting through tenant applications, and more. But this does not get you off the hook completely. You must do your due diligence to select an experienced and competent rental property management company that will have your best interests in mind.
Purchasing an investment property is different from buying a place that you plan on making your full-time residence. Mortgage insurance is not available for rental properties, which means that you need to have a minimum down payment of at least 20 percent. Additionally, if you have the financial ability to put down 25 percent or more on your rental property, you may be able to qualify for a lower interest rate.
Purchasing and renting an investment property is all about making a profit. While you may be willing to spend a little more than it’s worth for a house that you plan on calling home, you don’t want to make this mistake on an investment property. Ideally, you want to find a property that you can get for 10-20 percent below its current market value. This will allow you to have a cushion to make any necessary repairs, and it will also maximize the profits that you can make from your tenants. However, it can take a while to find a deal like this. With some patience and knowledge of the real estate market, you will eventually be able to find an investment property that is the right fit.