What you Need to Know Before Buying your First Investment Property

Written by: CashAdvice Staff

There are many inspiring success stories out there of people who earn themselves quite a big amount of fortune coming from passive income from their real estate investments. If you have some extra cash, it is understandable why you want to be a part of this esteemed group of investors.

However, getting into this kind of endeavor should be properly planned because there are also numerous risks associated with it just like any other business. Regardless of the type of property you are purchasing, whether it is for rental purposes or quick re-selling, one thing is certain: real estate requires you to fork out some cash. Thus, it is crucial to take extra measures to protect yourself and the prospective profit you hope to make on this investment.

It is vital to cover all bases to ensure that you do not suffer the heartache of dealing with huge financial blows and losses. It takes a combination of timing, skillful planning, research, and may be a bit of luck to earn a fortune with your investment. Here are some things that you must know before you buy your first ever investment property:

Never Let Your Emotions Rule

Often, when you’re buying a home, you tend to listen more to your heart than to the advice of your brain. You choose properties that speak out to you and tickle your senses. However, even if this is for your first ever dream home or a second home for rental purposes, you must be rational and logical in your decision making. It is critical to never let your emotions rule, especially when it comes to investment properties.

Treat any real estate transaction as a purely business investment because you’re dropping a lot of cash. Make the right calculations and study the neighborhood area, as well as the house specs, so you can make a sound decision. Remember to negotiate to get the best possible price because the lower the price of your investment property, the better and bigger the odds are that you will earn a higher profit. Investment is indeed about economics and not emotions!

Research is a Critical Aspect

It is critical to do your research when you are thinking of buying your first ever investment property. Compare your research results vis-a-vis on the type of clients you aim to target. You have to ensure that the property you buy is situated in the right location that will attract the type of client you hope to sell or rent your property to. To illustrate, if you are targeting low income earners, then you may want to consider properties that have access to public transport. If your clientele has a larger disposable income, then a town house at a high end community is more ideal.

By researching and studying the market, you can achieve the returns you aim to acquire because the investment property appeals to the right target audience. Researching before buying is a great analytical approach that is based on logical and sound factors. This means your decisions is strongly grounded on numbers, facts, and stats, and it is not just based on mere likes and dislikes. Doing the proper ground work will help you choose and buy the best real estate investment property out there.

Factor in Your Down Payment

The first house you buy that you live in will only require a three percent down payment. In contrast, an investment property will require at least a twenty percent down payment. The reason for this is PMI or private mortgage insurance does not apply to investment properties. Your investment property will require a bigger down payment. On top of that, they have a more strict approval process, making you drum up more paperwork and other requirements. You may also have to keep in mind that you need to do some home improvements and renovations before you make your offer.

Do the Math and Calculate Expenses/ Profits Ahead

When it comes to real estate investing, it’s okay to be a little bit paranoid. Of course this is totally normal because you want to make sure you don’t lose your hard earned money. Consider the crucial details like making initial calculations about how much you have and how much you need to borrow for your investment property. You need to factor in the house purchase costs, including repairs and renovations.

In addition to that, there are operating costs to think of if it is a rental property, like routine maintenance and upgrades. If you intend to re-sell or flip the property, consider the expenses for listing and capital gains taxes, so you can get a basic estimate of how much you stand to make. You need to do all these calculations to ensure you are in the safe zone.

Consider a Low Cost Home for a First Investment Property

For a first time investment property, you need to initially test the waters. Even if you have millions to invest on real estate, it is a safer decision to try your hand at a low cost home as your first ever investment property purchase. You may need to spend some on renovation costs before you rent or sell it out, so make sure all those are manageable. Going this route makes it more secure for you and your money because you won’t risk losing too much in case something untoward happens.

Make Sure to Pay Your Debts

As a new investor buying your first ever investment property, you should not be carrying a lot of debt in your portfolio, especially those credit card debts that come with sky high interest rates. Before you venture out into real estate investing, consider clearing your pressing debts first and foremost. The reason for this is this lessens your monthly burden and the interests that eat away at your income. Besides, you may need an investment loan to fund the property, so having as little debt as possible lessens the pressure. It is crucial to make the right choice among the large number of loan options out there.

As you can see, there are many things that you have to consider before buying your first investment property. If you are planning to partner with someone, you have to be cautious of the deals you make with them, too. Investing in the world of real estate is exciting but you have to exercise due diligence in protecting yourself and your money. Follow these smart tips and play if safe, so you shall always be on the winning side.


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