Your Guide to Buying an Investment Property
Buying an investment property requires consideration from a financial rather than an emotional point of view. While there are some similarities when purchasing a property for personal use, an investment property must provide a positive return on investment.
This requires several key decisions to be made before you even begin looking for a rental:
- Where is the best location?
- What is your budget?
- How many bedrooms does it need?
- Who are your target tenants?
- What rental yield do you require?
- Who will manage your rental?
- Do you want a turnkey or a fixer-upper rental?
To help make the process of buying an investment property easier, let us guide you through the process and help you answer these questions.
Process of Buying an Investment Property
Having made the call to become a property investor, you should first identify how you will pay for the property. This may be with cash, home equity, mortgage, or any combination of these options. Having your finances sorted first places you in the best position to begin your search.
Then comes the question about whereabouts you should purchase the rental. Location does matter greatly, so ensure you complete due diligence regarding the popularity of a location for tenants. This includes not only the city it is in, but closeness to shops, public transport, schools, and demand for rentals within that area. Now is also a good time to consider your target tenants, as if they would not be wanting to rent in this area, you should be looking elsewhere.
The size of the property you will look for also depends upon your target tenants. A rental for a family will require a larger property with multiple bedrooms, than if you wanted to rent to an individual or a couple. The cost of the property may also vary, though a studio or small apartment is likely to be located in highly populated areas, costing the same as a multi-bedroom house out in the suburbs.
There are pros and cons in choosing a turnkey vs a fixer-upper investment property. If you have a lower budget, then renovating the property before seeking tenants is likely to be a preferred option. This does though mean you won’t receive an immediate rental income. If on the other hand you have a higher budget and prefer a hands-off approach, a property you can rent immediately is likely to be on the cards.
You should also spend time developing your investment strategies and motivation. Is your main preference to achieve capital growth, or would you prefer positive cash flow from rent payments? Are you wanting to develop your rental portfolio, or are you likely to sell this property when you need the money?
Finally, if you are managing the property yourself, ensure it is near to where you live, giving you quick access when required. If you are using the services of a property management company, then you can consider a location further away.
Property investment is a sound investment strategy for many, but it is not suitable for all. If we could leave you with one important piece of advice, it is to undertake due diligence when buying an investment property to avoid a costly and stressful mistake.
Infographic Created by Foundation Doctor, Trusted Foundation Repair Company Gastonia NC