Buying an investment property is a great way to earn additional income, but making bad decisions along the way can actually cost you more than help you.
This is why buying an investment property, while it offers great income potential, isn’t something to be entered into lightly. If you are thinking about buying an investment property, our experts are ready to share some tips that make their buyers more successful.
Our experts have helped numerous buyers just like you find and buy the investment property of their dreams.
Pay Down Debt First.
Buying and maintaining an investment property requires a lot of financial flexibility. Before you consider buying one, it’s wise to ensure that you have paid off all other debts. This includes items such as student loans, unpaid medical bills and college tuition for children. If you have any of these types of debt, then right now may not be the best time to buy.
Get The Down Payment.
Purchasing rental properties generally require a larger down payment. While you can generally purchase a home with as little as 3% down, in order to buy an investment property, you will need to put down at least 20%. This is because mortgage insurance, a requirement for down payments under 20%, is not available for rental properties.
Watch For High-Interest Rates
Even though mortgage rates may be low right now, the rates on investment properties tend to be higher. This is significant because small changes in interest rates can have a large impact on your bottom line. You want a mortgage that’s low enough so that it doesn’t eat through your profits unnecessarily.
With a large number of shows featuring flipping homes, it can seem like a very appealing idea for an investment property. In reality, unless you have experience with large-scale home improvements or have a partnership with a very good contractor, you will probably overspend on your renovations. It’s best to avoid this type of a home. Aim for something that needs very minor repairs.
Determine Your Return
You need to be constantly asking yourself how much you are wanting to get for each dollar you invest. Try and aim for a respectable 6% return in your first year. This is generally held as a healthy return for first-year investments, considering that rate of return usually rises the longer you hold the property.
Start With A Lower Cost Home
If you are just beginning to get into the investment property business, don’t bite off more than you can chew. Start with a home that costs around $150,000 or less. The lower the cost of the home, the lower your monthly mortgage payments and expenses will be.