6 Things You Must Check Before Buying an Investment Property

3 January, 2022
Things you should consider before buying an investment property

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.

6 Things to Look for in 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.

  1. Location. As an investor, you’ll need to look at the property’s overall value. If you’re buying a vacation property, is it a place where people want to visit? Are there attractions in the area that you can use to promote it?

    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.

  2. Repairs and fixes. It’s unlikely that you’ll find a property that doesn’t need some work. Tally up how much work you’ll need to do on the property before you decide to buy it is vital to staying within your budget. This means having a thorough house inspection. Ensure you include behind-the-wall elements of the property, such as having an electrical inspection of the building. This will give you peace of mind about investing your money.
  3. Additional expenses. Aside from fixes, there are other expenses that you’ll need to budget for. These include property taxes, insurance, landscaping or upkeep costs, etc. You should also make sure you have some funds on hand for variable expenses like replacing a broken water heater or repairing a damaged roof.
  4. Pest problems. Some property damage cannot be seen from the outside. You’ll need to call in the experts to investigate. You don’t want to buy an investment property and find out you have a termite problem and need to pull out most of the wood.
  5. Electrical issues. Another hidden problem could lie with the property‘s electrical system. Sometimes problems with the fuse box can remain hidden, but they present a serious risk to your property and anyone who lives there. To avoid buying a property with electrician issues, you can ask electricians to do an electrical inspection of the building. Professional electricians will examine all the components of your system to ensure they are safe and meet modern building standards.
  6. Ownership history. Knowing who has owned the home previously can reveal some interesting things. For example, if there have been a lot of owners, the turnover rate may be a sign that it is a risky investment. That might indicate some problem with the home or neighborhood, making it an unattractive place to live. Be cautious if you notice a property with two or more owners in 10 years. Getting into that type of investment might make it difficult to get out.

Other investment property considerations

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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