It seems like everyone is trying to find a new way to earn money on top of their full-time jobs.
The side-hustle has essentially become a pillar of today’s economy, but everyone doesn’t have the time to drive an Uber or freelance in their spare time.
If you want to make money and make a solid investment, consider buying investment property.
Plenty of millennials are pouring their time and money into properties, and it’s starting to pay off. The right investment property could help secure your financial future.
Before you set your mind on buying investment property, let’s take some time to discuss the facts. If you want to learn the truth about investment property, read on to learn more.
What To Know Before Buying Investment Property
An investment property can be a great way to make money, but only if you do it the right way. There are some essential things people should know before they make a commitment to investing in property.
Do you think you want to buy an investment property? Are you confident that you know everything you need to know?
Read what we have to say, then you’ll be fully prepared to buy the investment property of your dreams.
Know You Can Handle It
Buying investment property may seem like a passive form of income, but that “passive” income could cause a lot of work for you.
Can you handle plumbing repairs? Do you know how drywall? Are you good with people and can handle settling disputes?
If you were to rent the property out, would you be able to devote time to being a landlord? Can you take time to periodically visit the property, help the renter with what they may need, and make sure that your investment is protected?
If you aren’t good at what we just mentioned, do you have the money to pay someone who can handle those things for you?
There are a lot of responsibilities that come with buying investment property. Don’t view it as a way for you to sit back and collect rent. See it as taking on a part-time job.
Save For A Big Down Payment
Most people think that the down payment for their first mortgage payment was the most they would ever put down for a house. But if you plan on buying investment property, you should be sure to save up for an even larger amount.
One important thing to know is that mortgage insurance isn’t available for rental properties.
You’re going to need to commit to making payments, and you’ll want to pay your property off as fast as you can. So the bigger the down payment you can make, the better your financial future will be in the long run.
Loan costs also tend to be higher for investment properties because of the risk involved. Putting down a large down payment can help keep future payment costs low.
Remember, overall you want to make as much money as you can off of your property. Spending more time and money than you need to pay off the property eats into your profits.
Putting down a large down payment can help ensure that you spend less money and time on your property. Re-evaluate your current budget and see where you can save money to put towards your down payment.
Pay Off Existing Debt
If there’s a golden rule to buying an investment property, it’s that it’ll take more time and cost more money than you’d think.
It’s estimated that remodeling multiple rooms in a house can cost $39,211 in 2018. That’s just the average, extra projects can cost a considerable amount of money.
Half-way through the remodeling work, you may find that you need to choose a different kind of HVAC system. You could have a housing inspector come to your property and tell you that you need to redo your entire plumbing system.
Extra costs will pop up during the rennovation and remodeling process, and more can happen even after you find a renter. That’s why it’s a good idea to try to pay off as much debt as possible before you start.
You never know when you’ll need a small loan or credit card to help fix some important issues. Get your credit and debt in order before you start seriously considering buying investment property.
Starting off with low debt and a stellar credit score can help make the entire process easier from the beginning. You’ll have more money to devote to repairs, and you’ll have ample credit available if you need to take out loans.
Learn Basic Repairs
Would you consider yourself a handy person? Do you know how to repair a leaky faucet, patch a hole in a wall, or fix the pilot light on a heater?
You can hire people to handle the big repairs in the home you purchase, but if you want to buy investment property, you should be able to make basic repairs.
Knowing basic repairs can save you a lot of money in the long run. You won’t need to rely on others to handle common repairs or run the risk of having your renter make repairs and damage the property.
Avoid A Fixer-Upper
Remember, the aim of an investment property is to make money. A fixer-upper may seem appealing because of the low buying price, but it’ll cost a lot of money in the long run.
Did you know that on average it can cost anywhere from $8,000-$10,000 to replace copper plumbing pipes in a 15,000 square foot two bedroom home?
If that cost sounds high now, imagine not paying professionals to handle the job and relacing yourself. Even if you’re a handy person, remember that these repairs don’t just cost money, they also take up your time.
How much time can you afford to take off from your full-time job to devote to an investment property? Can you really take away time from family, friends, and loved ones in your free time to make repairs?
Unless you’re a professional contractor and live for remodeling projects, avoid looking at places that need a lot of work when you’re buying investment property.
Places that need substantial work can often end up costing more time and money than they’re worth. Pick a place that would easily rent with a new coat of paint and carpet, not a brand new HVAC system and septic makeover.
Keep Location In Mind
When you’re buying investment property, don’t just look for inexpensive homes that don’t need a lot of repairs. Think about buying property in a place where renters would want to live.
Consider what you’d look for in a neighborhood before you’d make a commitment to moving there.
If you have a family you’d spend a lot of time thinking about school districts, playgrounds, and overall neighborhood safety. If you’re career-focused you may want to be near a transportation hub or close to a growing job market.
You could buy a great home and rent it out at a low price. But if it’s in a bad neighborhood or somewhere people don’t want to live you’ll have a hard time finding renters.
Determine A Baseline For Success
If you’re buying investment property, don’t make the mistake of assuming that finding a renter that pays on time means that you’ve succeeded in making money.
Take time to crunch numbers and think about what a successful investment means for you.
You need to do more than just break even every month and cover your expenses. Over time you should be able to bring in profit and start making back what you invested.
Don’t Forget About Extra Costs
The down payment you make on the house along with the repairs you need to make aren’t the true cost of your investment. If you’re interested in buying investment property the right way, consider all of your costs.
Taxes can vary depending on where you want to buy your investment property. You may be able to qualify for some tax breaks, but overall the cost of taxes can add a very hundred or even thousand dollars to your monthly costs.
If you’re planning on getting a loan to cover costs, consider the interest rates. Interest rates can rise over time, and a few years could add a few hundred dollars to your monthly payments.
When you’re thinking about how to finance your investment property, consider the whole picture. Calculate all of your costs from the get-go and you’ll be on the right track to make money.
Now that you know what goes into buying investment property, it’s time to put your knowledge to good use and start working towards having property of your own.
If you want to own an investment property, you’re going to need money to make repairs and cover your down payment.