Buying Your First Investment Property: Things to Consider

Here are 7 important considerations you should think about if you're looking to buy your first real estate investment property.
Things to Consider for Your First Investment Property

Many of the world’s wealthiest people started as real estate investors, so there’s no doubt that property as a sound investment sector. Still, as with any type of investment, it’s better to know what you’re doing before you dive in with hundreds of thousands of dollars. In the world of real estate, the information is king, so make sure you tick off these considerations. 

Make sure you’re up for it

Do you know the difference between a belt sander and a disc cutter? Can you repair drywall or unclog a toilet drain? While you can always hire someone to solve your problems, that reduces your profit margin. Real estate investors who have more than two homes often do the repairs themselves to save money. If you don’t have a lot of spare money and you’re not handy with basic repairs, investing in property might not be for you. Of course, as you add more properties to your portfolio, this may change, as you’ll be able to assemble a team of cleaners and handymen.

Settle the debt first

Experienced investors might include debt in their investment portfolio, but a new investor should avoid it. If there are unpaid medical bills, student loans, or children who are about to attend college, going for rental properties might not be a wise move. However, it’s not always necessary to pay down debt, especially if your real estate return is higher than the cost of debt. Do your calculation and maintain a margin where your lack of cash can’t endanger the payments on your debt. 

Have the down payment ready

For investment properties, the down payment is usually larger than with properties that are occupied by the owner, and there are usually stricter approval requirements. The usually 3% you would put down on the home you live in isn’t going to be enough for an investment real estate. As mortgage insurance doesn’t apply to rental properties, you’ll need to have at least 20% lined up for the down payment.

Choose a great location

To land a profitable rental property, keep an eye out for low property taxes, decent local schools, low crime rate, and plenty of amenities that attract renters. Some of these stunning locations, such as the islands of Indonesia have laws that prohibit foreign citizens from land ownership, so many investors go through an expert from the Invest Islands Foundation, the only Hong Kong-based real estate company that offers its clients an investment opportunity in this tropical paradise through a transparent, regulated entity, without a need for a local middleman. 

Calculate your margin

High-rolling investment firms that buy cheap properties aim for the 5% to 7% returns as they have to pay their staff. Individuals, on the other hand, should set their aim to 10%, if we know that annual maintenance costs can set you back 1% of the property value. Other costs that may amount include homeowners’ association fees, monthly landscaping and pest control, property taxes and landlord insurance. 

Be careful with fixer-uppers

While it’s tempting to go for a house you can get at a bargain price and flip into a lucrative rental property, if you’re a novice of real estate investment, you should stay away from deals like these. If you don’t have a contractor who’s willing to do quality work on the low margin, or you’re skilled at extensive home improvements, chances are you’re going to pay too much to renovate. Your target range should be homes that are priced slightly below the market and require only cosmetic repairs. 

Evaluate risks vs. rewards

As with any financial undertaking, real estate investment carries its set of risks. Although your income is passive, allowing you to put your time and energy into your regular job, tenants can be a constants source of problems, especially if you don’t go through a property management agency. Unlike stocks, real estate is a physical asset, which you can see and touch, however in most cases you can’t sell a portion of your real estate, nor you can dump it all instantly if the market goes sour, as with Wall Street products.

In investing in real estate it’s important to stay realistic. A property isn’t going to generate a large monthly income while choosing the wrong one might lead to a financial disaster. If you’re about to go after your first property, consider partnering up with an experienced buyer.

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