Investment properties can be smart purchases. When you find the right one, you can sit back and enjoy passive income for a long time. However, you have to be strategic in your property selection for this to happen. Considering market trends and investment guidelines can lead you to the right opportunity.
When you are considering buying your first investment property, you may feel overwhelmed. Whether you are looking for a condo in the city or a cabin in the woods, you need to stay clear-headed, so you make the right choice. Here are some of the most important things to think about when buying an investment property.
While each property is unique and your reasons for selecting it may differ from other investors, there are some common things to consider. These include location, price, anticipated return on investment, and condition of the home, such as the electrical system. Here are six things to watch for in your next investment property.
Also, research the market trends. Is the property a fixer-upper located in a highly competitive market? That may make it a great opportunity. However, if it is somewhat run down and located in an area where it will be difficult to attract tenants, you might be better off letting it go. In other words, think first about the location and second about the actual building. Even if it is the most beautiful home, you may struggle to see a good return on your investment if it is in an out-of-the-way location.
Along with the list above, there are other things you as an investor should consider, such as:
Down payment – it’s important to have your financing in place before you start scouting for the right investment property. Mortgages on investment properties are stricter than your own home. For example, you’ll need to put more money towards a down payment. Aim for about 15-20 percent. Talk with your lender about the details so you have a clear idea of your limits.
One percent rule – in the world of investment real estate, there is something called the one percent rule. This means you should expect to earn at least one percent of what you paid for the property each month. Following this rule helps you know what you should charge for rent. However, you also need to be sensitive to the market. If the property is in an up-and-coming neighborhood, you may have to expect less for rent and aim for long-term tenants instead. But don’t get yourself in a situation where you are paying more for your monthly payments than you are bringing in. That is a sign of a bad investment.
Time commitment – before you get into an investment property, consider how much time you want to spend. That is, do you have the time and energy to be a landlord, or would you prefer to outsource the day-to-day management? While paying for a management company to oversee your investment property is an added expense, it could be worth it in the long run. However, if you are prepared to be hands-on with your property, remember there is a cost to that too. You’ll be putting your own time and money into handling renters issues, repairs, and general property maintenance.
For more information about electrical inspections, call Hi-Lite Electric at 416-800-5523 or contact us here.
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