Top 10 Tips for Buying an Investment Property

Top 10 Tips for Buying an Investment Property


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For many buying an investment property at a time of low rates and rising rents is an attractive proposition. But how do you make sure that a particular investment will actually deliver positive returns? The secret to get the attractive returns lies in investing in the right kind of property at the right time and at the right price. You must also need to understand if you can effectively manage your investment over a long term to gain the maximum returns and reach your financial objectives.

Are you considering to dive in and invest in a buy-to-let property? Here are top 10 tips for buying an investment property:

1. Know your budget

If you are looking to invest in a property, set out a clear budget. It is important to take into account two kinds of costs; cost of buying a property that includes purchase price, stamp duty, inspection costs, legal costs and mortgage insurance and cost of owning a property that covers council rates, ongoing costs for any repairs and maintenance, land tax and property management costs. Once you have compiled all the relevant cost of the house you are planning to buy, compare it with the rent you are possibly going to get. Does the investment make sense? Also ask your bank for an estimate on how much money you can actually borrow before you start looking for properties to invest in. All these factors will help you determine if you are ready to make an investment.

2. Understand the market and do the research

Talk to real estate agents and the locals to find out what properties are available and which ones are considered best for investment purposes. In fact talking to renters will give you an unbiased view of a particular neighborhood. Find out what are the vacancy rates in the neighborhood. A high vacancy rate is an indication that the area is not as desirable as you would like to think. Not only will it make it difficult to rent out the property to the right tenants but you may experience hard time selling it.

3. Select a promising area

Buy your property in an area which is not only promising for rental accommodations but also for future appreciation if you plan to sell at a later stage sometime. The location should have all the right amenities such as schools, hospitals, parks, malls, gyms, movie theaters and public transport facilities that will attract renters. Other important points to consider are if the place offers good employment opportunities and if it is a safe neighborhood. It is also a good idea to find out if there are going to be any new developments in the area that might affect its potential as a good place to rent or buy. For example, a major construction right next to your property might make it less attractive for the renters. On the other hand, if there are new business centers, new schools and new homes springing up, these growth signs that property prices will appreciate and eventually will pay dividends in the long run.

4. Seek professional advice and get the right mortgage

There are numerous mortgage options available in order to finance your investment property. Don’t underestimate sound mortgage advice and make sure you speak to a professional, knowledgeable financial advisor who can guide you through the deals available and also help you decide which mortgage option is best for you.

5. Get an inspection

Hire a professional inspector who can check the condition of the property before you sign any purchasing contract. This is an important exercise as it will save you both the money and trouble to fix any potential foundation problems later. You wouldn’t want to end up with a house that needs considerable improvements, costly fixes and repairs later to make it habitable. It will only eat into your profits and damage your cash flow.

6. Renovate the property and consider your target tenant

If you have a presentable property, it is likely to attract tenants who are ready to pay higher rent for a well-maintained and well-preserved property. Invest some time, efforts and money to make your property more attractive for the potential renters. Renovations and home improvements may also increase the amount of rent you can get. It is also important to know who your target tenant is and then renovate the property accordingly. If you are targeting students, the place need not be luxurious but for young professionals, the house should look stylish and modern.

7. Get insurance

There are different types of insurance that you as a landlord may need, for example liability insurance, hazard and fire insurance, income protection insurance and natural disasters insurance. Having a proper insurance can actually protect you against huge financial losses in a number of situations such as partial or total property loss or a liability lawsuit. You must get a professional advice on what type of landlord insurance will be best suited for your purpose.

8. Hire a professional property manager

While it is true that a property manager may cost you some percent of the monthly rent, but a professional and experienced manager can help you get the best possible value from your investment. A good manager will help you find the right tenant, conduct reference checks on your behalf and ensure that tenants pay their rent on time. A professional manager will also be able to let you know what is right time to review rents, take care of any repair or maintenance issues and make periodic inspections of your property to make sure that the tenant is keeping it in a good condition. What’s more, a manager will be able to educate you on federal and state laws regarding rental property that you as a landlord must not violate. Hiring a professional property manager will in fact save you from a lot of trouble and day to day inconvenience of managing tenants as well as your property.

9. Use the equity from another property

One effective way to buy a property for investment purposes is to use either the equity in your home or from a previous property investment. It will allow you to borrow more money against your investment property, proving beneficial in tax deductions.

10. Look long-term

It is important to understand that buying a property is a long-term investment. You will need to commit long-term to realize the benefits, not exactly expecting the rise in property prices right away. The longer you have patience with your investment, the better results it will give over a period, provided you have taken in to account all the above considerations and invested carefully with a sound professional advice. And you can even consider buying a second investment property as you begin to build a considerable equity.

Buying an investment property can be a great way to achieve financial independence but one must remember that there’s no guarantee that property value will increase in a predicable manner as rents, home prices and property taxes can fluctuate unexpectedly. It is also important to maintain a right balance between building a financial security and still being able to enjoy your present with the existing resources. Give your decision a careful thought before you actually invest in real estate.

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