Important Factors If You’re Thinking Of Buying Your First Investment Property

Buying a residential property as an investment opportunity is a smart move if you do it right. Unfortunately, the process can be overwhelming, especially if this is your first time. A lot is going on and a lot at stake, so you need to go in with a clear head and a clear understanding of what to expect. 

To that end, we’ve put together this short guide that discusses several of the most important factors you need to consider if you think you’re ready to buy your first investment property. 

Location

Even though you’ll be buying a piece of physical property, you need to consider the location of that property before actually considering the structure itself. This is because the right property in the wrong location won’t give you the returns you’re hoping for. 

For example, the housing market is fierce in the Bay Area, so buying a fixer-upper there will likely garner plenty of rental income to recoup your renovation expenses. Buying a fixer-upper in a slower market will likely cost you money. Your best bet is to find an up-and-coming, happening location and then look for a property in that market. 

The Down Payment

The down payment on an investment property is much higher than that of a primary residence property. For a primary residence, you usually only need 1-10 percent down, but on an investment property, you could be required to put down 15-20 percent. Also, approval requirements for a mortgage on an investment property are often much stricter as well. 

Fixed and Variable Expenses

Anytime you own a property, you must be prepared to pay more than just the monthly mortgage. Fixed expenses, such as property taxes, homeowner’s insurance, HOA fees, property management fees, and routine maintenance costs, are easy to calculate. Unfortunately, variable expenses such as replacing the hot water heater and repairing the roof after a big storm are much harder to predict. For this reason, you need to be prepared with an emergency fund to handle these types of things when they pop up. 

How Hands-on Do You Want to be?

Do you want to be a hands-on type of landlord who handles all the tasks associated with your rental property? Maybe you don’t have the time to do it all, in which case, you may want to consider hiring a property management company to do it for you. 

You’ll need to compare the cost of both – in terms of time and money – and then decide as to whether hiring a property management firm is the right choice for your bottom line. 

The Risks

As with any investment, there are risks involved when you purchase a residential property for investment purposes. Consider these carefully.

  • You may not get the rental income you expected.
  • You may need to pay for expensive repairs.
  • Property taxes might go up.
  • The economy/local market could decline.
  • You could have bad tenants that cost you money. 

Investing in a residential property can be quite profitable if you do it right. Consider the factors above if you’re thinking of buying your first investment property.