Buying Investment Property: 10 Things To Consider Before Diving Into Real Estate Investing

When considering including real estate as part of your investment portfolio, there are many factors to consider. It’s not just about deciding on a property to invest in, because you’ll also need to answer some questions about your investment. Not all real estate investments are the same, and not all investors are the same. Here are ten things to consider before you start investing in real estate.

First, are you ready to invest in real estate? You need to be mentally prepared and financially established. Remember: If your property is between tenants, you still have loan payments to make and other obligations to meet. You may want to check with your investment advisor about your current portfolio and how much you can afford to carry until you start to see a real return on investment.

Next, make a plan. It will help you map out your strategy and define for you what your objective is in terms of investment. Your plan will guide you if you want to make changes along the way. Your plan can also help you understand all the expenses you’ll incur down the road, including utility bills, your experts’ fees, times when no one is renting from you, and maintenance and repair costs.

Then decide what type of property you want to invest in. You could invest in rental properties, or you could buy houses with the intention of fixing them up and reselling them, a process called flipping. Then there are the commercial properties you could invest in, such as commercial buildings or multi-unit residential units.

You will definitely need to have a solid foundation to finance the properties you choose. If you have the cash to make your initial investment, you can make a lot more by buying homes fast and saving on your mortgage each month. Remember that even though interest rates are low now, there’s no guarantee against future increases, so if you decide to finance, be sure to lock in a low rate with a fixed-rate loan.

Consider the current vacancy rates in the area where you want to purchase your investment property. Too many vacancies near the house you choose does not bode well for you to be the successful one at finding tenants.

Sixth, decide who will do the property management. If you intend to live on site, you can certainly take on this task yourself. But, if you’re not going to live on site, or don’t feel confident doing the property management part yourself, hire a professional property manager or contract with a PM company.

When you’re ready to buy, it can help to find a real estate agent who specializes in investment properties. They will be more knowledgeable about finding you properties that suit your unique needs.

Make sure you do a full home inspection before you buy so minor repairs can be made and major repairs avoided. Solving minor repairs can mean that you can add value to the rent.

Remember that being a real estate investor, particularly if you’re going the owner route, is a business. You will need to keep financial records, comply with regulations and file legal documents. It will be necessary to have a team around you that can help you with these tasks.

Lastly, what is your exit plan? Although you may be in real estate for the long term, you eventually need to sell the property. If the economy goes down again, you won’t be able to sell it easily, or if you do, it may even be at a loss. Having a plan of what you will do for each property will help ease the stress of a weakening economy.