Thinking of Buying Investment Properties
Buying investment properties has been proven over a long period of time to be an excellent source of additional income and also as an asset whose value increases each year. When you decide to retire selling these properties is better than money in the bank. Most people who have never invested in property see renting as an easy process: buy the house and sit back as the each week the rent pours into your bank account uninterrupted. Sadly there is a lot more to investing than that. For most first time investors their biggest fear is not the process of owning a rental property buy rather being able to find the financier to fund the first property. Quite often however this is a lot easier than they would think. What you need to consider when you buy your first investment property is what are the issues and costs involved in renting a property.
A simple mistake made by investors entering the property market is to assume that the mortgage repayments that will be owed on the new property will be easily covered by the rent paid. Buying a rental property without first researching to see if the rent will cover your mortgage repayments is the first step to disaster. As with any investment the first step is to research, research and research again. You should decide on the area you want to buy the property and then check the local real estate agents to see what they are charging for rent and the types of properties they are renting. Take note of the type of property and the features, such as number of bedroom, bathrooms, renovated kitchen and keep these at the forefront of your mind when looking for a property to purchase. It is also a good idea to contact the area’s local landlord’s association to find more information about rental rates.
A potentially big hidden problem owners can face is not having an emergency fund for the property. This fund is needed for the repair and upkeep of the property, and more worryingly can be needed to pay the mortgage during periods where the property is vacant. Ideally you will have money set aside to pay the mortgage for a few months before you purchase the property. You need to keep this in mind when you are looking at potential properties and how much you can charge for them, will the rent paid cover the mortgage, the cost of insurance, taxes and ongoing maintenance to the property?
It is also important to imagine your perfect tenant, not just one who pays their rent on time but also ones who will be respectful to the property, the neighbours and the local community. For example a small home might attract a young family and although you may expect that they will pay the rent on time they do have children and possibly pets which would be more likely to damage the property than a young couple in a upmarket apartment complex.
Also the facilities in that community can also dictate the type of clients you can expect to get. If there is a University or College nearby there is a good chance that the property will be rented to students. Buying in a community with a large number of students almost guarantees that your property will rarely be vacant but also means maintenance costs could skyrocket.
If you haven’t been scared away from investing after reading all that then renting could be the investment for you. Once you understand and accept some of the financial issues involved in the rental market it is time to look at the law, in particular what are the rights and responsibilities of being a landlord. Each state has its own set of laws pertaining to this so it’s definitely outside the scope of this article but understanding your responsibilities can save you a lot of money and maybe even jail time.
Renting properties can be a great way to secure your financial future but it is full of potholes waiting to catch the unsuspecting investor. Before you invest you must do your homework, understand all of the financial and legal considerations before signing off on your first property. Before you buy your first property go out and talk to local landlord associations, talk to your local real estate agents and tell them I’m thinking of buying a rental property, what do I need to know?
If you are still eager to get involved with buying investment properties, I congratulate you and welcome you to the wonderful world of property investment.