If you want to try and make your very first real estate investment then you should know that there are various steps that you need to take, so that you can lower your risk overall.
Consider Your Comfort Level
The first thing that you need to do is assess your overall comfort level. Think about it, do you know your way around a toolbox? How good are you at repairing drywall, using tools, or even unclogging a toilet? Sure, you might be able to call someone in to take care of it for you but if you do then you may find that this eats into your profits far more than you realise.
Take Into Account Personal Debt
If you are a savvy investor, then you might carry some debt as part of your overall investment portfolio. The average investor should avoid this if possible though. If you have a student loan, some unpaid medical debts or even kids who are due to attend college, then buying a rental property might not be the best move. Being cautious is always a good thing- but know that it’s not necessary to pay down the debt you have if the return from your investment is greater than the total cost of your debt. If it isn’t, then paying down the debt you have might be wise.
Secure a Down Payment
Investment properties require a much bigger down payment when compared to properties which are owner-occupied. You may also have to meet far more stringent approval requirements too. The 3% that you need to put down for a standard home won’t work for an investment property. In most cases you will need to have 20%. New homes may have more favourable terms.
The last thing that you need is to be stuck with a rental property in an area that is rapidly declining. A city where the population seems to be growing with a strong revitalisation plan underway will represent a fantastic investment opportunity. When choosing a rental property you need to look for a home which has very low property taxes and you also need to look out for a good school district too. If you do, then everything else will certainly fall into place.
Compare Buying with Financing
Think about it, is it better to buy with cash or is it better to finance your investment property instead? This will depend on your investment goals. Paying cash will give you a positive flow. If you take out financing then this will cut into your profits, but it may help you to make a better investment overall.
The cost of borrowing money might be cheap in this day and age, but the rate on your investment property will be higher when compared to a traditional mortgage. If you make the decision to finance your purchase, then you will need to have a low mortgage payment that won’t eat away at your profits as well, so do keep that in mind if possible.