Considering Buying Your First Investment Property? Here's What You Need To Know
Considering purchasing your first investment property? Buying an investment property can be a smart financial decision. Real estate has been a proven wealth building strategy over the long term. Whenever you're looking for an investment property it is important to do your due diligence before making a purchase. Here are some factors to consider before buying your first investment property:
Investment Strategy: It is important that you as a real estate investor are clear with your goals and know you want to invest. Some investing options investors have are Fix and Flips, BRRRR method, Long term rentals, Short term rentals, Wholesaling, REITs, Syndications, and many other investing options. As a real estate investor, you need to decide if you want to be a passive or active investor. Regardless of the route you take you need to be clear on your goals and do your due diligence.
Your financial situation: Make sure you have enough savings to cover the down payment and other costs associated with buying a property. Some costs can include appraisals, inspections, closing costs, down payment, taxes, lender fees, title insurance, and other fees that come when purchasing a property. You should also consider your debt-to-income ratio and whether or not you can afford to take on the additional monthly expenses associated with owning a rental property.
Property Location: One of the most important factors to consider when purchasing a property is the location. Ideally, you want to invest in areas with strong rental demand and good potential for appreciation. In the United States Coastal markets typically have high appreciation over the long term, however, typically rental rates have not caught up. In the midwest markets such as Indianapolis have shown consistent appreciation and increase in rental rates. Wherever you choose to invest it is important to do your due diligence on the location and be clear on what you are looking for when choosing a location. Ideally, the location should have a strong appreciation and rental income.
Type of property: There are many types of investment properties, such as single-family homes, multi-unit buildings, and commercial properties. Each has its own advantages and disadvantages, so choose the type of property that aligns with your goals and investment strategy. Typically single-family homes have a strong appreciation and good cash flow. Multifamily properties typically don't appreciate as much as single family homes but can have stronger cash flow. Most investors recommend having a well-balanced portfolio over the long term when investing in real estate. Each type of property has its own advantages and disadvantages, so choose the type of property that best suits your investment goals and risk tolerance.
Condition of the property: The condition of the property will affect how much you need to invest in repairs and upgrades before it is ready to rent. A property inspection can help you identify any issues and estimate the cost of repairs. You also want to decide whether to buy a turnkey property or a fixer upper. The BRRRR method has been a popular investing method among real estate investors. If you want to buy a fixer-upper you want to decide if you want to make major renovations or cosmetics. Regardless, when purchasing a fixer upper it is important to budget and do your due diligence.
Rental income potential: Calculate the potential rental income of the property to determine if it can generate positive cash flow. Look at rental rates in the area and factor in expenses like property taxes, insurance, maintenance, and management fees. Look for rental data such as vacancy rate in the local market. Doing your due diligence when looking up the stats for the local market will help you budget, build reserves, and be prepared.
Building a Team: When searching for or purchasing an investment property, real estate investors will work with professionals. It is important over time as you scale you start building a team of professionals, this includes real estate agents, general contractors, loan officers, title companies, attorneys, insurance agents, accountants, and property managers. Whenever you are analyzing a market or property it is important to network with professionals which can build you more wealth and save you thousands in the long term.
Property management: If you plan to manage the property yourself, consider how much time and effort you are willing to invest. Alternatively, you can hire a property management company to handle tenant screening, rent collection, repairs, and other tasks. Regardless of whether you choose to manage it or not, a real estate investor needs to budget for maintenance expenses, management, permits, and any other fees depending on the location that comes with real estate investing.
Financing options: There are a variety of financing options investors have, Investors can choose to pay cash or also have financing options such as traditional mortgages, FHA loans, or private lenders. If financing, real estate investors can shop around for the best interest rates and terms to ensure you get the best deal. There are tax benefits that can come with real estate investing such as interest write off. Tax laws vary by jurisdiction and can impact your rental income, property expenses, and investment returns. Consult with a tax professional to understand the tax implications of owning an investment property. With a variety of financing options, a real estate investor has the opportunity to get their foot in the door of a property.
By carefully considering these factors, you can make an informed decision about buying your first investment property. Investing in real estate can and has proven to be an effective wealth building strategy over the long term. Ninety percent of millionaires become so by owning real estate. At Intrigue Indy, we specialize in managing long term rentals in the Indianapolis Area. Indianapolis has had a steady appreciation and an increase in rent rates with a strong demand for rentals. Long term rentals have proven to be a stable and steady wealth building strategy for real estate investors and we believe it is the most sustainable way to build wealth. Interested in learning more about building a rental portfolio in Indianapolis, IN or the surrounding suburbs? Schedule an intro call with us.