Buying your first real estate property as an investment may yield excellent returns due to rental income and property appreciation, but there is always an element of risk in purchasing an investment property. However, following a few guidelines can help prepare you to manage the process smoothly. There are lower-risk options available, such as participating in a syndicated equity deal or investing in a real estate fund instead. Here is a helpful guide that can assist people who are ready to take the plunge.Crunch the NumbersBefore you begin, make sure you have the funds needed to make the purchase and complete any necessary repairs or updates on the home. If you aren't buying with cash, you will need to find financing and have enough funds for a down payment and enough in reserve to pay the mortgage for six months if it isn't rented right away.In addition to money, you need to have the time available to look for the right investment property, find a responsible renter, and be able to respond quickly if repairs are needed.Select a Property TypeYou have the option to invest in a house or a multi-family dwelling. Financial experts agree a house is a great manageable choice as your first property. The rental income should cover your mortgage payment and have enough left over to create a savings account for future repairs. If you've chosen a well-maintained home in a good location, the house will appreciate over time.Investing in a multi-family unit will generate more cash flow in rental income. As a beginner, look for a property between two and four units, such as a duplex, condo, or townhouse. Commercial financing is generally required for properties with five or more units.When purchasing an investment property, be wary of buying a home “as is” just to save money. These homes typically have significant issues such pest infestations, mold problems, or structural damage.Hire an Investor-Friendly RealtorHire a real estate agent who specializes in selling investment properties. He or she has invaluable advice on the right neighborhood to buy in, what features renters typically look for, and knows the best price to offer when you are ready to purchase. The time and money you save using a realtor more than compensates for the cost of the agent's commission.Buy the PropertyYour realtor will find several properties for you that make good investments. Look at each property with an investor's eyes and focus on finding an attractive rental instead of one that suits your own personal taste. Renters generally look for houses with at least three bedrooms in a great school district that is close to shopping and entertainment options.When you find the right one to buy, follow your real estate agent's advice on the offer price and leave the negotiations up to him or her. No matter how good you think you are at negotiating, your agent is a pro and knows how to get you the best price and terms.Consider Hiring a ManagerUnless you have a lot of spare time and want to handle all the landlord duties on your own, it is worth considering hiring a property manager. You typically are charged 10% of the rent for this service, but it ensures a professional is:
- Setting the best price for the property
- Marketing the home, condo, duplex, or townhouse
- Handling the rental contract
- Running credit and background checks on possible tenants
- Managing regular maintenance and repairsInvesting in your first rental property is a big decision that requires planning, research, and expert advice — in other words, lots of hard work. Following these guidelines will help you find the right one for your investment dollars.
Best of luck!
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