If you’re considering investing in real estate, awesome! Few investments help build long-term wealth like real estate. If this is your first time purchasing an investment property, I’ve compiled some helpful tips to guide your journey. Let’s take a look:
1) Make sure that real estate investing is right for you. Your first income property will consume quite a bit of time as you learn the ropes of being a landlord, so be prepared and ensure that you have the time. You’ll also want to jot down a list of vendors and make-ready professionals (like a handyman, plumber, electrician, house cleaner, etc.) that can help you with inevitable property upkeep and repairs. You don’t need to be “handy” to invest in real estate, but you’ll want to have vendors on speed-dial.
2) Save for a down payment. Mortgages on investment properties require a more substantial down payment than owner-occupied homes, and they also have more in-depth approval requirements. Plan on a down payment of at least 20 percent of the purchase price.
3) Calculate your margins. As an individual property investor set a goal of 10 percent returns. Estimate annual maintenance costs at one percent of the property value. Costs to consider include insurance, homeowner’s association fees, property taxes, and repair costs.
4) Calculate your operating expenses. Operating expenses are typically between 35 and 80 percent of your gross operating income, and often hover around 40 to 50 percent.
5) Determine your return. For every dollar you invest, calculate your return on that dollar. A six percent return in your first year as a landlord is healthy, and this figure should grow over time.
6) Find the right house and location. Study the trends of tenant demand in your area. What is your renter pool desiring most in a home that they lease? Consider a home with smart home technology and recent updates, and be mindful of its location relative to amenities and schools.
As with any investment, a rental property doesn’t make you rich overnight. However, every real estate investor has started somewhere, and the same is true for you. Temper your ambition with wisdom from a REALTOR® and property manager who has thrived in every type of market. Contact me today if I can be of service as you embark on your real estate investment journey.
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