Investments can be a great way to get ahead, and more and more people are jumping into the market of buying investment property. However, this decision should not be taken lightly. If certain tricks of the trade are ignored, you might find yourself deeper in debt than before. There is a lot to gain from buying property to either flip or hold and rent. That said, first time investors should consider buying for the long term, as this is generally more of a sure thing than a short term flip strategy.
First and foremost, take a look at the numbers. You want to make sure that the monthly rental income will cover all of the property expenses such as property taxes, insurance, financing, repairs and maintenance, and everything else. When you analyze the numbers, remember to be conservative with any estimates you make, and always bake in a 10% vacancy rate. If the property appears to be cash flow positive on a monthly basis, you can continue on with the due diligence process.
The second thing to consider when buying property is the location. Location is everything, and the general rule of thumb is to buy rental properties in the best neighborhoods you can afford. The neighborhood will determine the type of tenant you can expect, as well as the amount of rent that can be charged. Another aspect of the neighborhood relates to fixer uppers, and the degree to which you make the necessary improvements. Avoid improving a property so much that it is far better than the surrounding homes on the block. Keep the home comfortable and user friendly. People will choose the neighborhood for a reason, so make sure the home is fixed up to fit in.
Another tip is when looking at potential houses to buy, look at the property for what it could be, instead of what it is. Spot the potential of the property and keep the renovations at a reasonable level. Make sure that the vision is reasonable for the labor that is needed to be done, and the price of the needed materials. Remember that hiring professionals to do the labor can help to assure things are done correctly the first time -saving money for things that may need to be fixed later. Hiring professionals shouldn’t be taken lightly, either. Make sure all references are checked out to ensure that all your contractors have the experience and qualifications to do the job appropriately and in full compliance with municipal codes.
Once all the hard work is done and the home is ready for a tenant, make sure that a screening process is used. Run a credit check, call old landlords and references, and verify income and employment. After all the sweat and money that was poured into the property, it’s only natural to want to keep it from being destroyed by deadbeats.
The bottom line is that buying a property requires a fair amount of due diligence. Do the homework that goes with being a great property investor, and also read up on landlord and tenant rights. It’s one of the most important steps in protecting the investment. Study eviction processes, and understand all the laws to help keep the profits flowing for the long haul.