Real estate investing has turned out some of the richest people in the world, so there’s no reason to think that it can’t do the same for you. If you’re thinking of investing in rental property, be sure you’re well-versed in what all is involved as not everyone is cut out for real estate investing. Below are several things to think about before investing in your first rental property.
1. Are You Ready to Be a Landlord?
Many first-time real estate investors will do their own repairs and maintenance to save money. Are you the handy type? Do you have the time it’ll take to cater to your tenants’ needs?
Sure, you could hire someone to do this type of work for you, but it’ll eat into your profits. Are you ready to be a landlord?
2. Do You Have Personal Debt?
If you have unpaid medical bills, student loans, or any other personal debt, investing in a rental property might not be such a good idea. That said, if the income from your rental property is more than the debt you owe, investing might make sense as it will help you get out of debt faster.
3. The Down Payment on an Investment Property
You may have only needed 3 percent down on your primary residence, but that won’t cut it for that investment property. Most lenders require at least 20 percent down on investment properties and their approval requirements are much more stringent than they are for owner-occupied dwellings.
Before you even begin thinking about buying your first rental property, you’ll need to secure enough money for the down payment. If you don’t have the funds in a bank account, you can always take out a personal loan, but again, this will eat into your profits as you’ll need to pay it back.
4. Location, Location, Location
You’ll want to look for a rental property that’s located in an up-and-coming area with low property taxes, good schools, and plenty of amenities renters will appreciate.
5. To Buy or Finance – That is the Question
The answer to this question depends on what you hope to achieve by owning the rental property. Paying cash for a rental property might garner a lower return on your investment than financing it. That said, you won’t need to worry about monthly mortgage payments if you pay cash.
6. Interest Rates
It’s important to note that interest rates on an investment property are usually higher than those associated with a traditional mortgage on a primary residence. Since this is the case, you’ll need to pay close attention to the interest rate offered by the lender as your monthly mortgage on your investment property could eat into your profits in a big way if the interest rates are extremely high.
There are a lot of things to consider when it comes to owning a rental property. If you’re considering buying your first investment property, keep these six things in mind as you decide if real estate investing is right for you.