The Good and Bad of Buying Investment Property
Investment property can be an excellent choice for people who have amassed some savings, but aren’t quite sure what to do with them. There are many benefits of buying investment property, but there are also downsides you need to be aware of before you make the leap into the world of real estate investing. If you’re considering buying investment property, here are the good and bad of that decision.
Is an investment property right for you?
Think hard about how much time you want to invest in property management. If you don’t mind getting your hands dirty with tenant issues, a rental property could be a good investment. But if you prefer an absentee landlord model, it might not be right for you.
Don’t forget that many landlords buy properties they never get around to fixing up—it happens all too often. Think carefully about how much work (and cost) is involved in rehabbing or otherwise updating your dream rental home before taking on that kind of project as an absentee owner.
Before you buy, do your homework. For example, if you’re looking to purchase a house to rent out as an investment property, there are several things you’ll need to know. You should talk with potential tenants about how much they’re willing to pay in rent, how long they plan on staying in your property and what amenities they want (or don’t want) in their living space.
If possible, try renting out a room in your home for a few months before making your first real estate investment. This way, you can see what it’s like dealing with real tenants rather than just doing research on paper. And don’t forget that there will be expenses beyond rent; consider all costs related to running an investment property before deciding whether or not to purchase.
Risks and responsibilities when renting out your investment
When you rent out your investment property, there are a number of risks to consider. One of them is how to cover costs if your tenant moves out early. After all, you can’t rent out a house if it’s empty. Another risk is what happens when renters don’t pay on time or at all. There are some simple steps you can take to protect yourself from these issues – so read on for advice about protecting your investment!
Risk factors to consider before purchasing real estate
Even if you believe that buying investment property is a great idea, it can still be risky. Every investment comes with some degree of risk, but there are a few things you can do to mitigate your risks before making a purchase. Here are five factors to consider:1. Use cash instead of borrowed money.
If you’re going to borrow money to make an investment, consider making it as low-risk as possible by using your own assets (like stock) as collateral or just paying cash for it outright—you can always borrow money later if you end up needing to fund renovations or pay off unexpected expenses.2.
Have a plan in place for any potential issues. Before you buy real estate, have a plan in place for what will happen if something goes wrong—will you keep it?
Will you sell it? What about renting it out? And remember: It’s not just about having a plan; it’s also about having one that actually works .3. Be realistic about your expectations. You might think that investing in real estate will get you rich overnight, but don’t let unrealistic expectations cloud your judgment or convince yourself to take on more risk than necessary.4. Don’t overinvest in one area or property type.
Things to look out for when doing an inspection
Making sure you’re buying a good investment property takes more than a quick peek at its curb appeal. You should, of course, take in all factors related to your decision, including location and price. But what else should you keep an eye out for?
If you want to make sure your investment property is in tip-top shape before buying it, here are five things that experts say buyers should investigate during inspections: (1) plumbing and electrical systems; (2) roof; (3) heating, ventilation and air conditioning; (4) windows; and (5) exterior features like porches or garages. If there are major issues with any of these components, you might be better off walking away from a deal than taking on a costly fix later on.
Questions to ask sellers/builders during negotiation stage
I’ve worked with a lot of sellers, but each one is different. Generally speaking, I think it’s important to get as much information as possible during negotiations. Asking questions is a good way to start getting to know someone. The same goes for sellers—every seller/builder is different, so your strategy should reflect that.
To help you come up with some questions on your own, here are three sets I like to ask What makes you want to sell? This can be tough because sellers often want to provide positive answers (and they usually do). But asking them why they want to sell can provide valuable insight into their motivation.
If they say something like I just got married and we need more space, then you know there may be an issue if you have a tenant who wants to stay in place for awhile. Or if they say My kids have grown up and moved out, then that means there won’t be any family members wanting or needing space in your building down the road.