Real estate is an overwhelmingly stable investment that retains its value and appreciates over time. You can get amazing tax advantages, an outstanding rate of returns, and even leverage your property to build wealth. But like every other business, you could earn a good chunk of money or experience a total loss. To be on the winning side, here are some of the things to consider when buying an investment property.
Be Prepared for the Challenges
Being a first-time landlord comes with a lot of challenges as you learn the ins and outs of the industry. It’s like another part-time job. Also, before the rent checks start rolling in, you may have to deal with unexpected repairs. As such, you need to know your way around the toolbox and how to handle minor repairs.
Secure a Down Payment
The down payment required for investment property loans is typically larger than for owner-occupied properties. The three percent you put down on your house isn’t going to work in this case. Mortgage insurance isn’t available for investment properties, and you will need at least 15-20 percent down payment to get financing. You can even get a better rate by putting more down.
Determine Your Niche
Focus on a real estate investing strategy. Are you looking to buy rentals, fix and flip properties, or invest in notes? Find out which real estate niches you can venture in and study the inventory in the market. For instance, you can decide to invest in single-family houses, small multifamily units, or college student rentals; whatever makes the most sense to you. Go for properties located in nice neighborhoods and in proximity to a wide range of amenities.
Calculate Expenses and Profits
Start with having your finances in order and determine what you already have and what you’ll borrow. Then calculate the amount that would go into the purchase, renovation, and maintenance. Finally, estimate the price you’re going to list your property for and your projected ROI.
Get a Low-Cost Property
Buying a larger property than you can handle is not a good idea. Remember, you’ll need to pay more for renovation before renting or selling the property. Start small and go for properties that lie in the lower-to-mid range price range. For instance, purchasing a single condo or apartment can help you get grounded in the real estate industry as you figure out whether this type of investment is really for you.
Choosing the right commercial property loan could make a positive difference to your financial situation. At Capital Fund 1, we’re hard money lenders committed to making real estate investment financing in Arizona as seamless as can be. Contact us to learn more.