Buying an investment property has lead to a secure financial future and increased wealth for many people. But, like any investment, you need to do your homework before jumping into the housing market. Many realtors say purchasing an investment property is similar to running a business. There will be decisions that need to be made, people to deal with and many ups and downs. Once the keys are in your hands, so is your business. So before making that investment decision, there are two main factors you should consider: Will the property generate a steady monthly income? Secondly, will it appreciate in value? If your answer to these is yes, then you’re on your way to a successful investment. Let’s take a look at some of the other factors you need to consider…
The Landlord Role:
If you’re thinking of buying an investment property, you must be prepared to be the landlord. While it may seem like a simple job, it’s not for the faint of heart. You need to be able to lay down the rules with tenants, deal with late rent pay and set aside money for future or emergency repairs. Typical landlords are handy and enjoy fixing things. If you are a parent juggling a 40+ hour work week, maybe now isn’t the best time to purchase an investment property. Of course, there is always the option to hire a property manager to take care of these things for you, but their salary is an added cost.
Choosing The Right Property:
Buying the right property in the right location is one of the most important factors that will determine how profitable your investment is. Try to find a home that is low-maintenance and low-cost. Experts recommend starting with a home around $350,000. Regions with booming jobs and population growth are good locations because that is where the people are moving to. You want to look for an area that has a nice neighbourhood with a decent school, low-crime rates and amenities such as parks, malls and restaurants. Homes in these types of areas will sell faster and for more money.
Buying an investment property is a risk you must be willing to take. Prior to making your purchase you’ll have to ask yourself if you will be able to cover the inevitable lulls in tenancy and still afford to pay your own rent. You could be facing expenses that are higher than you expected. For example, you have mortgage payment, taxes, insurance and maintenance that are all most likely higher than your primary home. You also have to worry about finding tenants that will rent out the space to cover all of these costs. Ask yourself, are you ready to face these challenges?
The real estate market will always have its ups and downs. If the city or economy goes downhill, you risk losing lots of money in depreciation. When purchasing a home that you will be renting out, look for positive cash-flow properties. This means that when the market fluctuates, you don’t have to worry about price downturns as you are not relying on solely property price increases to make profit.
Overall, buying an investment property could be a great decision for your future. If you do your homework first and consider the pros and cons for your situation, you could be well on your way to a life of financial freedom.