Investment Property Steps

Jumping into the real estate industry can be frightening, but if you do your homework and put an honest effort into learning, it will all be worth it in the end. Before you buy your first property, here’s what you should know. 

Prepare yourself for the downpayment and interest rates

Buying an investment property is not the same as buying an owner-occupied home. What’s different is mortgage insurance isn’t an option any longer. They do not offer mortgage insurance for properties that are intended to be rented. They will also want a down payment of no less than 20%. 

Another difference is interest rates. The investment property rate is usually a bit higher than owner-occupied home rates. 

Know if you want to rent or flip the property

Renting a home versus flipping it will require a different game plan. You’ll need to know what you want to do before so you can organize and plan your strategy accordingly. 

When you flip a home, you’ll need a lot of cash for repairs, energy to do the work, and a plan to sell it. Renting doesn’t need as much money but you will see your investment coming back in a longer period of time. Renting is more of a marathon, unlike flipping which is a sprint. 

Understand the local market

Knowing even a little bit about your local community and market can take you a long way. If you plan on renting this home, you’ll need to know if the city/town is growing, stagnant, or dying. Is the city seeing a population growth, or are people moving out because of dying industries? You’ll want a market that is attracting young entrepreneurs, and hopefully they can afford your price range in rent. 

Research the market

If you have been eyeing a property, do some research and check to see what similar buildings in the area are selling for. Look at the local buying and renting rates for similar buildings. This will give you a good idea of what your future situation will look like. Skimming through the rices isn’t quite enough Dig a bit deeper and look into the offerings of these properties, like if they allow a free months rent, or do they put you on a waitlist. 

If agents want to offer incentives this means there is a competitive market with not enough buyers/renters. If you are waitlisted and prices seem a bit higher, this says there are too many buyers/renters and not enough properties. 

Think about repair costs and others

When thinking about properties that obviously need repairs, you need to decide if you want to flip it or rent it. No matter which way you go, you’ll need an inspector to find all the problems in the home that may not be jumping out at you, like mold. Once you know what you want to do with the house, decide if it will be worth flipping or selling once you make all the necessary repairs. 

Once you decide, figure out which repairs you can do your self, and which ones need to be done by a professional. Homes that need cosmetic improvements can be much cheaper than homes that have internal problems like electrical issues.  

When all is said and done, don’t forget to set aside a stack of cash for closing and holding costs. In the worst case scenario you may lose money on your flip house if it takes too long to sell. 

When you plan on renting, major repairs aren’t completely necessary because it’s a longterm investment and you want to minimize your upfront costs.

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