When you want to make money in real estate, buying houses for investment is a great way to do it. But if you’re new to this form of business, you would find out that the process can be a bit daunting. In this article, we will help you get started in your journey towards financial freedom.
Important Factors to Consider When Buying a Residential Property for Investment
Like any other kind of investment, there are a number of important factors you need to take into consideration when buying a house for investment purposes. Here is a checklist that you can use.
- Investment Strategy
- Location
- Type of Property
- Condition of the Property
- Return Potential
- Financing
- Risks
Investment Strategy
First and foremost, you need to have a clear investment strategy in place before you take the plunge.
What are your goals? Do you want to generate income or build equity? Or, both?
If you do not have an idea of what you want to achieve, buying a property for investment purposes will be nothing more than gambling. To create a good investment strategy, you can seek the help of professionals who can guide you in your investment journey.
For example, you can hire a real estate agent who specializes in investment properties. Not only that they can help you decide on which properties to buy for your budget, but they can also provide you with market analysis and rental potentials.
Apart from a real estate agent, you can also consult with a financial advisor to get a better idea of how buying an investment property will fit into your overall financial goals.
Location
It is one of the most common mistakes that new investors make—buying houses for investment in a location where they would want to live themselves. Alot of builders who use the BRRRR Method take a long look at location before they select a location.
Remember that you are buying a property for investment purposes, not for your own enjoyment. The key is to find a location that is desirable for most people.
Also, you might be tempted to buy a property that is cheap, but if it is located in a crime-ridden neighborhood, it will be very difficult to find tenants. Not only that, but the value of the property will also go down over time. So, do not just pick the cheapest property that you will find during your search.
Moreover, it would be good for your investment if you buy in an up-and-coming neighborhood that has the potential for appreciation. This will not only allow you to get a good deal on the purchase price, but you will also benefit from the capital gains when you sell it in the future.
Lastly, the property that you buy should have close proximity to amenities, like schools, hospitals, and transportation hubs. This is because these features can affect the rental potential of your property.
Type of Property
When it comes to buying a residential investment property, you have a few options. You can buy a single-family home, a duplex, a triplex, or a fourplex. There are also other types of properties, such as condominiums and townhouses.
The type of property that you should buy will depend on your investment strategy and your budget. For example, if you want to generate income from rent, then it would be a good idea to purchase rental property types, such as a duplex or a triplex, as this allows you to live in one unit and rent out the rest.
On the other hand, if you are buying an investment property for long-term purposes, then buying a single-family home would be a better choice. This is because you can get more equity from a single-family home than from other types of properties.
Condition of the Property
You should always inspect a property before buying it. This is because you might have to spend a lot of money on repairs if it is in bad condition.
If you are not familiar with inspecting properties, you can hire a professional home inspector to do it for you. They will be able to tell you if there are any major or hidden problems with the property that need to be fixed.
If there are any structural issues on the property you are buying, you can point them out during the negotiation process. This way, you can get the seller to lower the price or make the repairs themselves before you close on the deal.
Return Potential
Remember that you are buying houses for investment, meaning you should be able to generate income from them. So, you should first do some research on their return potential.
The two most important factors that will affect the return on your investment are the rental income and the appreciation of the property value.
To calculate the rental income, you need to find out how much rent you can charge for the property. You can do this by looking at comparable properties in the area. It is important to remember that you will also have expenses, such as mortgage payments, insurance, taxes, and repairs.
The appreciation of the property value is more difficult to predict. However, you can get an idea by looking at the historical data of the area where the property is located.
Financing
You will need to have financing in place before you start looking for an investment property. This is because most sellers will not accept any offers that are contingent on financing.
Of course, you can finance your investment out of your own pocket if you have the cash. However, most new investors prefer to take out a loan from the best mortgage lender that they can find.
A reputable mortgage company, such as The Mortgage Shop, will be able to help you get the financing that you need. They will even give you some helpful advice and guidance on buying the right investment property.
Types of Loans That You Can Get
There are various types of loans that you can use in buying a house for investment.
The most common would be the conventional mortgage. This is a loan that is backed by the government.
Another type of loan that you can get is the Federal Housing Administration (FHA) loan. This type of loan is insured by the FHA and has more lenient credit requirements than a conventional mortgage.
You can also get a VA loan if you are eligible for it. This type of loan is guaranteed by the Department of Veterans Affairs and is available to veterans, active-duty service members, and their spouses.
Risks
Last but not least, you should look into the risks that come with a certain property that you are buying. These risks can be financial, legal, or physical.
For example, if the property is located in a flood zone, then you will be at risk of flooding. If the property is located in an area with high crime rates, then you will be at risk of theft or vandalism.
You should also consider the risks that come with financing your investment property. For instance, if you take out a loan, and you default on it, then the bank might foreclose on the property.
This is why it is important to do your due diligence before buying a house for investment purposes. You need to make sure that you are aware of all the risks involved so that you can make an informed decision.
Buying Your First Property: Steps to Take
Now that you know all the basics of buying an investment property, you are ready to start looking for your first property. Here are the steps that you can take.
1. Find a good real estate agent.
The first step is to find a good real estate agent who specializes in residential investment properties. They will be able to help you find the right property and negotiate the best price.
If you are not sure where to start, you can ask your friends or family for referrals. You can also check online reviews.
Make sure that you interview several agents before deciding on one. This way, you can be sure that you are getting the best possible service.
2. Get pre-approved for a loan.
This will give you an idea of how much money you can borrow and what interest rate you will be paying. It is important to compare different lenders before deciding on one. Be sure to check the fees, terms, and conditions of each loan before making a decision.
You can apply for a loan online or in person at a bank or credit union.
If you are not sure which type of loan is best for you, your real estate agent should be able to help you decide.
3. Look for properties.
Now, it is time to start looking for properties. This is where the skills and knowledge of your agent come invaluable.
They will show you around different properties and help you negotiate the best price. Once you find a property that you like, it is time to start negotiating.
4. Make an offer.
When making an offer, you will need to take into account the asking price, the condition of the property, and your budget. However, you should remember that there is no right or wrong answer when it comes to offering this type of deal. It all depends on what the market conditions are and how much you are willing to pay for the property.
Once you have an offer, your agent will submit it to the seller and negotiate on your behalf. If the seller rejects your offer, then you can either make a higher offer or look for another property. If it is accepted, then congratulations! You are now the proud owner of an investment property.
Final Thoughts
Without a doubt, buying houses for investment is a great way to build wealth through real estate and ultimately achieve financial freedom. But, only if you play your cards right.
So, always take into consideration the important factors in buying an investment property, do your due diligence, consult with a professional, and most importantly, take your time before making any decisions. With the right property, you will be well on your way to achieving your goals.
For more helpful information for your investment journey, feel free to check out the other articles on our site. Happy investing!