Are you interested in learning how to buy investment property? Are you a first time investor? Oftentimes, buyers who are new to investing are fearful of making errors that will cost them larger sums of money than the investment itself. This gives way to a natural hesitation about diving into the pool. I will provide you with tips to learn about investment properties for beginners. The process is not difficult; you just need to follow the proper procedures.
Before we go any further on this topic, I do want you to understand, however, that buying investment property is a complex business decision not to be taken lightly. You should study this subject in-depth prior to taking any action, and you should seek professional help from your attorney, accountant and real estate agent. That said, it is always good to have a plan in mind before you start looking for help with your property investments.
- Choose the type of investment. Investment properties can include vacant land, rental houses, condominiums, apartment buildings, store fronts, commercial properties, industrial properties, mobile homes, mobile home parks, etc., each have varying degrees of risk and reward. For someone just starting out buying investment property for rental income, a rental house or small apartment building is probably the best choice. This type of rental property offers the opportunity for income on a regular basis, has shorter vacancies on average than commercial or industrial property, is less regulated than condominiums and mobile homes in most areas, and there are many places that you can get information and education on becoming a successful landlord in small residential properties. It is a good place to start, and it is the type we will be concentrating on in this article.
- Choose an area. Some people have a difficult time deciding where is the best place to buy. Look for a property location that has a diverse economic base offering many employment opportunities. After all, the tenants will need an income in order to reliably pay rent. The area should offer good schools, shopping and transportation. If all three areas are satisfactory, then try looking at houses for sale so they will rent easily. Another possibility is locating and buying condominiums for sale. This, however, would involve much more property management on your part than buying a house would. Ideally, the location you choose will be an easy drive from your residence so that you can keep an eye on it. And, the area should be safe. Profits and money are not worth risking your life for, and the quality tenants that you want to attract do not want to risk their lives either.
Tip: When you investigate an area, get copies of the local newspapers and the city newsletters for the last few years so that you will be aware of things that are happening that may affect the value of properties. Changes in the laws, land use planning, zoning changes and many other things can change the value. Talk to people in the community to find out what issues are being discussed. Talk to other investment property owners to find out how the community relates to landlords. Due diligence in this search can save you a lot of time and money.
- Choose a location within the community. When buying a good investment property, the three most important things are "location, location, location." Location within the community will determine the ease with which you rent or resell the property. It will determine the price that you can command. And, it will determine the quality of customers you attract. It is one of the things about real estate that is unchangeable, so you have to choose right to start with.
- Research property values and rents. This information is available from real estate agents, as well as from a variety of other services in most areas. You will want to call rental ads in the paper and talk to local landlords about what they are offering, how much they are charging, and what their experience is with the market. Some of them may be open to selling their property and may even be willing to finance it, so be sure to ask.
- List the criteria an investment will need to meet in order for you to be interested. For instance, single family home with at least 3 bedrooms, 2 baths, and a 2 car garage which will rent for enough to cover the mortgage payment. Taking the time to define your search ahead of time, including the finance rates for your loans, will keep you on track and shorten your time to success.
- Find a competent real estate agent that is in the area, knowledgeable about investment property, and willing to work. Make sure you get referrals. Interview agents before you choose one.
- Analyze the property. When you find a potential property, gather all of the data that you need to determine the seller's motivation, what it will rent for, what the expenses will be, and who pays for what. With commercial investment properties that you want to use as rentals, such as apartments or condominiums, it is imperative that you get all of the information the seller has to offer. Then, when they are done providing information, it is your job to go check it all out. You want to make your offer is based on actual rents and actual expenses, not sloppy or fictitious numbers.
- Research financing options. Financing investment properties could be challenging if you do not have any or little money to put down. If you have already developed a solid banking relationship with your local bank, things will go more smoothly with both your investment property loans and finance rates. You need to know your investment property finance rates are typically based on your credit score so it would be good for you to check your current score prior to proceeding further. If you are running into obstacles finding loans, do not give up. With extra time and perseverance, you may eventually find a perfect lending institution for you; one where you can develop a lifelong banking relationship.
- Make an offer. Make your offer contingent on a review of all documents related to the property, a thorough inspection of all units by yourself and a professional inspector, and approval of the terms of your contract by your accountant and/or your attorney. If your offer is accepted, then your next task will be deciding if you want to play a role in the rental management team, or hire another professional. You need to consider your decision carefully as investment property management is time consuming and having prior knowledge in this area would definitely be beneficial.
Hopefully, you will find the perfect property investment and will receive adequate financing. At that point, you will have successfully become a property investor and it is time to enjoy your new-found wealth through your income property, whether building your future retirement or supplementing your existing income.
Make sure you join a local real estate investor association like the Chicago Creative Investors Association, which I run in suburban Chicago. http://www.ccia-info.com/