Whether it's a fixer-upper or a property that you plan on renting out, real estate can be a great investment. It can also be a risky investment if you don't do your research. Investment property, especially rentals, are a great way to bring in regular income. The trick is to choose properties that are in high-demand areas for renters or that are likely to make you a tidy profit after being sold. While this may seem easy, it can be more difficult than it appears. Here are three things that you should consider when purchasing investment properties.
Research Is Important
The first thing that you should do before buying an investment property is research the area you intend to buy in. Having a good handle on the local real estate market can mean the difference between making a profit and losing money. If you are looking for a home to rent out, you will want to make sure that local codes allow renters. You will also want to make sure that the property is in an area that is popular with renters. If a fixer-upper is an attractive purchase, make sure that you are actually getting a good deal and that you will be able to make a profit once the renovations are completed.
Financing Is Crucial
When it comes to buying investment property, financing is key. While paying in cash is an option for some, most people require at least some financing to get off the ground. It's important to note that purchasing an investment property is a little different than purchasing a home you plan to live in for an extended period of time. A down payment of at least 20 percent is recommended, and a credit score above 740 will in most cases ensure that you qualify for a loan at a low interest rate. In many cases, lenders are more strict when it comes to investment properties.
Consider The Total Costs
With investment properties, every cent counts. This means that you will need to consider every cost that is likely to come up when determining whether or not you will make a profit. For example, it's suggested that you put away at least one percent of the purchase price of a home for maintenance each year. Maintenance costs, paying for a property management company, and other costs can eat into your profit from a rental property. Pricey renovations can also lead to less profit for fixer-uppers. It's important to look into all potential costs before investing in a property.
When it comes to real estate buying as an investment, there are a lot of things to consider. Doing your research and getting financing are key. You should also make sure that you consider the total costs of purchasing an investment property and maintaining it before you buy.