by Katie Conroy
If you’re thinking about buying your first investment property, you probably have an idea of the benefits. Among other perks, you know that it can diversify your income, consistently produce passive income, and help you learn more about investing. However, it’s also essential to understand the risks involved and learn about strategies that can help you make good decisions along the way. A lot goes into real estate investment, so getting prepared will help you prevent financial hardship and become a successful investor for the long term.
The MoJo Team is all about helping our clients and audience make the right real estate decisions, so we thought we would list a few tips for first-time investment property buyers.
Limit your liability.
Investing in properties as a sole proprietor is risky. Form an LLC to separate yourself from your business legally. Doing so will help protect your assets from litigation, not to mention yield a few tax breaks. Get an attorney or formation service to set up your LLC, and you can rest easy knowing it’s done right.
Research each property.
One fundamental step to buying your first property is to determine who your target clients are. Then, you will need to do your research. Any property you consider should be in an area that will attract your target clients. If it’s a vacation rental, there should be plenty of entertainment, activities, and other amenities nearby. Also, make sure the location is trending toward value appreciation. If you purchase a property in a declining area, you risk struggling with low occupancy rates and returns, among other problems.
Hire a real estate agent.
A real estate agent, like those on the MoJo Team, will be an important ally when it comes to finding an investment property. Not only will this market professional be able to help you with identifying a location to search for a property, they’ll also help you find one that falls within your budget and meets your unique needs — but their assistance doesn’t stop there! Your real estate agent will also help you make a winning offer (and help you negotiate on price, if needed), navigate the inspection process, and close in a timely fashion. Once you’ve purchased your home, they can also connect you with other professionals who can help keep your investment property in tip-top shape, including contractors, landscapers, and property managers.
Predict profits and expenses.
Too many first-time investors fail to do a proper cost-benefit analysis before buying a property. This can lead to disappointing returns on investment and even financial hardship. Before committing to purchase a property, estimate the profit you can make as well as the expenses likely to accrue. What is the purchase price of the property? How much money do you currently have to put toward the purchase price, and how much can you borrow? How much renovating will be involved to get the property ready for renters? What about operation costs?
If you are using the property as a rental, subtract all the expenses from your rental rate to get an estimate of what you could bring in each month. If you plan on flipping the property, you can get a rough estimate of your expected profit by subtracting the expenses from your list price.
Speaking of list prices, avoid purchasing an expensive property as your first investment. Sure, you may be able to bring in a little more profit or income by investing in a property that falls within a higher-range price bracket, but that’s assuming you do everything right.
Remember that you’re new to this whole real estate investment thing, and start with something safer. You can still make decent money investing in a property in the low- to mid-range price bracket, and you won’t have as much to lose.
Hire a property manager.
Property managers cost money. However, keeping up with maintenance, repairs, tenant issues, and other landlord responsibilities can quickly get overwhelming. To avoid burnout and ensure that the property is cared for professionally, budget for a property manager. The time and stress it will save you will make it well worth the investment.
For real estate investment to go in your favor, you must prepare and know a little bit about what you’re getting into. Remember to establish an LLC. Conduct thorough research and a cost-benefit analysis for any property you’re thinking about purchasing. Lastly, keep your first investment property in the low- to mid-range price bracket, and get a property manager to handle the menial tasks.
Are you looking for a smooth experience buying or selling a home? Contact the MoJo Team today for a free consultation! (816) 268-6068