Here are nine tips to help you choose the right property.
Buying an Investment Property
Buying your first rental property investment can be daunting and exciting at the same time. Take some of the guesswork out and follow these tips.
Do the math
Buying an investment property has the potential for long-term wealth; however, it may also take a long time to see any returns.
An investment property can be inexpensive to own and keep because rental income tends to increase over time, but this can take some time.
Unexpected financial stress could force you to sell the property at the wrong time. It’s essential to make sure you can afford the mortgage until you see returns.
Calculations should include property price, rental income, property loan, and taxes to determine if investing in property is a viable option.
Do comprehensive calculations for ongoing costs to determine annual shortfall and see how long it will take to break-even and see returns.
- Interest amount
- Loan repayment amount
- Property taxes and rates
- Property manager fees (Optional)
- Repairs and maintenance
These calculations will indicate how much you’ll have to pay in the long run and whether or not you can afford the property you’re interested in.
Research and understand the market
Proper research is the key to choosing the right property. Find out as much as you can about the area you’re interested in, demographics, council spending, and current real estate trends.
You may find information on the internet or from estate agents, but peak to neighbors and other local residents. They can give you the insight you won’t be able to find in published reports.
Look at the amenities in the area. Schools, hospitals, entertainment, and shops play a part in vacancy rates.
Also, look at the demographics in the area. Close to a university, a house with more rooms will rent will be in demand. Good schools indicate more families, so a quiet street close to a park or playground will make a better investment.
City Council spending is another area to research correctly. Make sure the money is spent on maintaining infrastructure, developing the area, and generally making the area more attractive.Research real estate trends, specifically the area you want to invest in. Property trends can be a good indicator of return on investment.
Consider the future
Future developments can significantly affect property value. It can also influence current property prices.
In the long run, some developments may increase the value of the property. Better infrastructure means the area will be more attractive to investors. Still, it also means you’ll have to fork out a more significant initial investment.
On the other hand, increased traffic and noise from a freeway development close by can reduce the value of your property.
Likewise, construction next to a property may make it hard to find tenants. Short-term, it would be more costly, but long-term, it may increase the property value.
Get advice on investment property loans
When buying an investment property, the right financing is essential. Your financial well-being should be kept in mind, and getting professional help will save you time and money.
You may spend weeks researching loan options when researching property markets, and potential investment locations are a better way to spend your time. The potential returns are worth more than the money you’ll save on a financial advisor.
A financial advisor can give you all the available options and help you choose the loan that will work best for you.
Check the property condition
Conduct a thorough inspection of the property before making an offer. The age of the building, extensions, and previous repairs could speak volumes on the potential benefits and risks of the property.
Engage a professional property inspector to find any problems before purchasing and then once a year for maintenance. Minor issues may give you a leg-up on negating the property price but could cause problems with your cash-flow.
Poor property condition isn’t necessarily bad. You can renovate the property and increase the value. Still, you need to be aware of the problems and plan accordingly.
Manage your risks
Property investment is long-term, and you can’t rely on property prices increasing quickly. The longer you hold on to the property, the higher the potential for returns.
Unlike shares, you can’t sell part of the property if you run into financial difficulties.
Renovate the property
Renovating a property can increase the value of the property. An attractive property will not only attract tenants; it also increases the resale value.
An attractive property also tends to attract better tenants.
Once the necessary repairs are made, choose neutral tones. Ensure the bathroom and kitchen are in good condition.
Find a qualified tradesperson to make the repairs. Saving money on poorly done repairs won’t last, and you’ll spend more on repeat repairs.
Renovation is a must if you’re thinking about flipping the property.
What is property flipping? Property flipping means purchasing a low-cost property, possibly renovating, then selling for a profit later on.
Find a licensed professional to manage your property. They take care of the property and the tenant on your behalf.
They can advise on property laws, your rights and responsibilities as a landlord and the rights of tenants.
They also find tenants and take care of maintenance.
Find the right investment property for sale
Once you’ve done the calculations and decided property investment is right for you, it may be tempting to buy the first property you find. Ideally, you should only invest in a property you are 100% happy with.
Unfortunately, this isn’t usually the case. Not all of your criteria will inevitably be met.
Before you start looking for a property, determine negotiable and non-negotiable factors. This will prevent you from ‘settling’ for a property you don’t actually want.
Rental property shortages and migration rates are favoring property investments, but be cautious and do research before buying an investment property. As with all long-term investments, patience and risk management is vital.
Do you have plans for a rental property investment? Why or why not? Let us know in the comments section below.