5 Tips for Buying and Managing Your First Investment Property
By: Katie Conroy, Advicemine.com
Buying an investment property can be a fantastic way to build wealth. If you’re interested in investing in real estate, you might be excited about your financial prospects. But if you’re planning to purchase your first investment property and expand your real estate portfolio, there’s more to the process than simply handing over your down payment and collecting rent. Here are a few guidelines to help you find the right investment property, hire contractors for strategic renovations, and determine a reasonable rental price for your tenants.
Understand the Market
Before buying a property, you need to gain a thorough understanding of the real estate market in the area where you plan to invest. Consider working with a qualified real estate agent who has extensive local experience. Additionally, you’ll want to spend some time carefully studying the market. Where are property values increasing and decreasing? Can you find cheaper properties in up-and-coming neighborhoods that could become hot markets in a few years? Finding the answers to questions like these will help you make an informed decision.
Analyze Financial Factors
Once you’ve learned the ins and outs of your chosen real estate market, it’s time to determine how much you can afford to invest up front and estimate your expected returns. Motley Fool states that you should be prepared for a 20 to 25 percent down payment on an investment property. You also need to consider how much you can spend on renovations, and you can’t forget to factor property taxes and insurance into your calculations.
Furthermore, you need to research the vacancy rates and average rental prices in the area. Will you be able to find tenants within a short time frame? Will monthly rental payments provide a profitable return on your investment?
Secure Your Property
Once you have purchased a property, you want to ensure that your new investment is safe and secure. But an alarm system comes with a high average price tag of about $675 — not to mention the additional service charges for monitoring. Thankfully, you do not need to spend a lot of money on an expensive security system. Instead, you can start by utilizing affordable, low-tech options that can still be effective at deterring criminals. For example, you could start by simply planting trimmed shrubbery and prickly bushes near the windows. In addition, improved lighting discourages people from break-in attempts.
Repair and Renovate
Before advertising your property for rent, you’ll need to hire contractors to carry out necessary renovations. Don’t attempt to fix every little flaw; instead, move forward with projects that will help increase the property value. Sharestates recommends focusing on upgrading the kitchen and bathrooms first. Landscaping the front yard can also help draw in tenants, and simply giving the walls a fresh coat of paint will spruce up the interior.
Price it Right
Finally, it’s time to decide on your rental price and start accepting applications from prospective tenants. Find out what other landlords in your area are charging for similar properties. It’s tempting to look at the upper limits in the neighborhood and try to set a high rate, but this tactic might not net you the kind of profits that you’re hoping for.
Setting the price too high can deter potential tenants from applying; people want to feel like they’re getting a deal on rent, and you may exclude good tenants. So, aim for a reasonable rate and remember that you can always increase it in the future if demand increases.
Investing in real estate can allow you to earn passive income and increase your net worth. That said, buying the wrong investment property can set you back financially. By researching your local real estate market, keeping your new property secure, and investing in renovations that will increase your property’s value, you can enjoy the economic benefits for years to come.