Buying An Investment Property: What Should You Know?

2 Minutes Posted on:

About Me

Identifying Real Estate Risks After having a difficult time financially for quite some time, I realized that part of my problem was my personal housing costs. I really began evaluating what I wanted out of a home, and I realized that I needed to shop for a place that would work better for what I needed. I started paying more and more attention to real estate risks, and it occurred to me that I hadn't invested in a smart property. After talking with my real estate agent, I started focusing on changing my ways, and it was incredible to see how much brighter my future became.



If you're looking at residential real estate to rent it out, you have different goals than the traditional home buyer. Working closely with a real estate agent is important, but there are also a few other things that you should think about.

Have You Already Secured a Mortgage?

It's very important to secure a mortgage before you start looking for properties, in terms of a prequalification. It's harder to get an investment loan; since you aren't living in the property, a mortgage company will worry that you'll be more likely to default. Most investors default on their investment properties before their residential properties. You'll need a larger down payment and also a higher credit score. 

Are You Looking at the Right Area?

Some areas are good for rentals, while others really aren't. You can look at real estate statistics to see the percentage of renters in an area; these numbers can fluctuate for a lot of reasons. Are there college students in the area, for instance? Once the median household income tends to hit a certain point, most people in an area are going to end up being home owners rather than renters; thus, there are certain markets more open for rental units.

What Will Your Profits Be?

To determine your profits, you need to look at the average rental rates in an area compared to your total housing payment. However, you also need to consider things such as the fact that the property may be vacant for some time, major repairs that you need to do on the property, and whether the property may become damaged by renters. There are a number of emergencies that can happen as a landlord, so you need to give yourself a "buffer" in your profit potential.

How is the Real Estate Market Doing?

Real estate makes you money in two ways: one is rental income, but the major way real estate actually makes you money is by steadily appreciating in value. Once you sell the property, you recover this amount. Not only do you want to buy real estate in an area that has good rental opportunities, but you also want to purchase in an up-and-coming real estate market that's growing in value.

Buying an investment property can be a great move, but how profitable it is will depend a lot on the type of property you buy. Your real estate agent can walk you through the best investment areas. 

• Tags: • 405 Words