Are you planning to take advantage on the recent dip in the prices on the real estate market or you just wanted to diversify your investment? Regardless of your reasons for entering the field of investment property, you need to be well-versed before you decide to dive in to this competitive market. Compared to the stock purchasing which can only cost you a few bucks, investing in this industry requires you to pour in a hefty amount of cash. In fact, you can easily invest 6-figure cash when buying investment property.
Essential Guide When Buying Investment Property
Make sure that you will arm yourself with essential information before you decide to become a tycoon in the real estate.
Ensure That This Industry is For You
Do you have a knack for repairing tiny problems on your property such as fixing the drywall or unclogging your toilet? Do you have any idea how the basic tools inside your toolbox functions? In this industry, you will have the choice to hire a professional service to do the job, but when you are just starting, then there is a good chance that it will drain your profit completely. Buying investment property for the first time requires you to conduct DIY repairs. In case you have no idea on how to get the job done, then this industry may not be suitable for you. Your goal during the initial years of your investment is to be aware about the various elements on being landlord.
Be Sure to Have the Desired Amount of Down Payment
When buying investment property, it typically requires a significant amount of upfront payment. In addition, it also requires a long stringent process in order to get an approval. Remember that the 3% down payment that you normally make when buying residential property will not be acceptable in the investment property. You need to have the capacity to provide at least 20% since mortgage insurance are not generally accessible in rental property.
While it may be true that the cost of borrowing cash is considerably cheaper today, the interest rate associated in buying investment property is considerably higher. Choose a property with a low mortgage payment to make sure that it will not eat up your monthly revenue.
Precise calculation is essential when buying investment property. You will basically need to calculate your margin and your operating expenses. Operating expenses is one of the major costs in managing an investment property. On the average, it should cost you about 35%-80% of your operating income. Furthermore, you should also consider the cost of the property. Expensive properties also come with heavier recurring expenses.
When buying investment property, you have to remain realistic. Like most of the business venture, the investment property will not generate a considerable amount of cash at the beginning. Make sure that you will choose a trusted partner in this industry that will help you create better decisions.