Real estate can be a highly lucrative investment. It tends to be low-risk and comes with several advantages such as tax breaks, equity building, and a steady cash flow. This means that more and more investors are anxious to get in on the action. Before jumping in head-first, be sure to do your research. There are some things you should know before taking the plunge into buying an investment property.
What to Know Before Buying an Investment Property: You Need a Bigger Down Payment
Because the purpose of your property is to make you money, it makes sense to put down a larger down payment than you would for your own home. Doing so allows you to secure better terms on your loan, such as lower interest rates. Better terms mean higher profits. To purchase a multi-unit property, you will be required to pay 25% on the down payment, as opposed to 15% on a single-unit home.
One way to get around this is to purchase a multi-unit property and use one of the units as your primary residence. This could make you eligible for an FHA loan, which can go for as little as 3.5% down.
You Should Know How to Fix Things
To become a landlord you should know how to complete basic repairs. You don’t want to lose all of your cash flow on the property in contractor fees. You can save a lot of money by learning how to take care of any repair issues yourself. Remember, a well-maintained property is more likely to attract long-term tenants. And long-term tenants are a landlord’s bread and butter.
Every landlord should know how to do basic plumbing, drywall patching, appliance repair, electrical switch and outlet replacement, pest control, HVAC maintenance, and painting.
What to Know Before Buying an Investment Property: Your Ongoing Rental Property Expenses
An important consideration when determining how much you can afford on an investment property is how much your ongoing expenses will be. Ongoing property expenses can include maintenance, repairs, landlord insurance, property management fees, HOA fees, and utility costs. You also need to plan for periods of vacancy. It isn’t enough to plug your income into a mortgage calculator and go from there. You will have additional costs as a landlord that should be factored in.
Investing in real estate is a relatively safe and profitable investment. However, it does come with some costs and time constraints. Your rentals will require continuous maintenance and administrative work, in addition to ready capital. Before you purchase an investment property, create a detailed plan to ensure that it will be worth it for you in the long run.
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Steelbridge Realty LLC is a Licensed Real Estate Brokerage that utilizes cutting-edge marketing techniques and data-driven Real Estate solutions in today’s ever-changing environment. Our group of professionals have decades of experience and have navigated through many business cycles. Our diverse background gives us the tools to guide people towards successful decisions.