Have you ever thought about buying an investment property? Managing tenants and maintaining a building isn’t everyone’s cup of tea, but a real estate investment property is a great way to earn income if you understand what you’re getting into. Here are a few things you’ll need to consider when looking for an investment property.
Higher Upfront Costs
Financing for an investment property works differently than for a traditional home mortgage. For a down payment, expect to put down at least 20% of the cost to get financing. A big part of the larger costs is because rental properties aren’t eligible for mortgage insurance. If you are looking to lower your interest rate, expect to go even higher than a 20% down payment.
Keeping Up A Property
When it comes to dealing with an investment property, it is a good to have some handywork experience. Knowing your way around basic home upkeep and repairs can save you a lot of money, especially the more units you take on.
Maintaining an investment property helps keep up its value and makes the space attractive to tenants. Maintenance can be a lot of work, and it’s important to know when to call in a professional rather than tackling a job yourself. Always keep savings on hand that can cover emergency repairs if they occur, and be sure to handle repairs on a property quickly, before they have time to worsen.
Many people make the mistake of choosing what they can afford based on all units being rented 100% of the time. Unfortunately, occupancy isn’t a guarantee when you have rental units. Build some leeway into your financial plan for your home. The property will likely need upkeep and repairs between tenants which takes time and money. Even unoccupied, you will still be responsible for the insurance, bills and taxes on your building.
Know What You Can Handle
If you are new to running a rental property, it is best to start small, even if you have big ambitions. Taking on an investment property that is in good condition and only has one or two units in it is a smart place to start. Smaller properties give you a feel for the work involved with investment properties, without throwing you into the deep end.
Making sure you don’t bite off more than you can chew is smart financially as well as good for your tenants. Nobody wants a landlord who can’t maintain their property or who is stretched too thin. When shopping for your first investment property, work your way up to bigger buildings.
Fixing Up Takes Time
When it comes to an investment property, time can very literally mean money. Since you lose income when units can’t be occupied, you’re straining yourself financially the longer you have to work on a place and the more work that needs to be done to make it rentable. When it comes to buying fixer uppers, you need to calculate the cost of repair time into your plan.
While a fixer upper can be an engaging project for a homeowner, it may not make sense for an investment property. The amount you save off the upfront cost of your property may be more than spent in the cost and amount of time the building is vacant while being repaired. Understand that buildings in need of a total overhaul may not fit in the timeline your financial needs require.
Sit Back and Invest
While the appeal of real estate investment may draw you in, perhaps in your heart of hearts you know that you don’t enjoy some of the day to day tasks of a landlord. Fortunately, there are ways to see some of the benefits of real estate investment properties from a more removed stance. Consider putting money into REITs – Real Estate Investment Trusts.
REITs pool investor money to buy property and then investors receive returns when the building is rented. REITs are far less personal and hands-on than being the single owner of an investment property, and investors pay for outsourced maintenance and repairs making costs higher. However, while you have less say in how a REIT property is managed and upkept, they involve much less time commitment and less singular financial risk.
Fawn Ridge Realty
Looking for a property in Lake Carroll? Contact us at Fawn Ridge Realty today to start your search!