5 Questions To Consider When Buying An Investment Property
An investment property refers to a real estate property bought to earn a return either through rental income, the future resale of the property, or both. Unlike a lot of things, buying an investment property is a long term investment that needs a lot of long term thinking and planning.
It implies that making a mistake during the purchase of an investment property can be quite fatal and cost a lot in both money and time when trying to fix it. We advise that you shouldn’t make mistakes and if you must, not to make expensive mistakes. We would be showing you things you should worry about, including outdoor motion sensor light most new homeowners want in their houses.
So, here are five questions you should consider before making down payment for an investment property.
When Were The Roof, AC Unit, Heaters And Other Utilities Last Replaced?
Before you buy an investment property, you must evaluate some key components of the property, such as the framing, the roof, the plumbing, and, sometimes, the foundation of the building. It is necessary to check how old and functional the furnace, the air conditioning unit, and the heater are. These are expensive to replace, and they need to be replaced within a few years. You should also check if the houses have a new state of the art equipment like motion sensor lights. You should know about all these before making a rental property investment. So, always get a home inspection. It has been corroborated by a New York Times published on the importance of conducting home inspections and what to expect from a home inspection.
How High Is Your Rate Of Return?
Rental property investment wouldn’t be worth it if it is not profitable. So, for every dollar you invest, what would your return on that dollar be? According to studies, a 6% return on investment is considered healthy and should increase over time. So, calculate the return on your investment before making down payment for an investment property.
How Does My Cash Returns Compare To Other Potential Investments?
You want the limited amount of money you have to be invested in the venture that will generate profit the fastest.
Buying investment property will bring forth excellent returns that will increase over time. It should be noted that every market and property is different. Investment in rental properties should be compared to other potential rental properties investments and even against other types of investments.
One comparative advantage of buying investment properties as against other forms of investment is the ease at which returns on rental properties can be calculated. Investment property mortgage rates are usually fixed, and returns over a specific period can be calculated easily.
What Way Are Social And Economic Indicators Trending?
Understanding the local economic trends is an important marker that will help you in deciding on buying an investment property or not. These economic trends include crime rates, unemployment rates, mean income, and population.
A shrinking crime and unemployment rate, coupled with an increasing population and income, is promising and encourages investment. It is important to talk to business owners in the neighborhood you want to buy an investment property in. Know the potential problems you might incur and create plans on how to solve those problems if, or when, they come up.
Who Is Going To Manage The Property?
Managing the property yourself saves you money because you will not have to pay a property manager. However, managing the property yourself is still an expense, a labor expense.
We advise you to hire an experienced property manager for your investment properties if you are inexperienced with property management. It will help you avoid the mistakes that come with inexperience and the potential lawsuits that may follow.
In conclusion, there are no defined set of rules on how to buy an investment property. There are questions you can ask yourself to make the process of buying an investment property easier. Going through this process will reduce the risk of failure of an investment. It will also help you in buying the most profitable investment property for sale.
Kay Burton is an investment analyst with over twelve years’ experience. He worked at The Blackstone Group for eight years as an analyst. Kay currently works at the American Tower Corporation as an investment property analyst. He lives in Boston with his wife, two children, and his two golden retrievers.