In: Real Estate

An In-Depth Guide To Purchasing Your First Investment Property

Is one of your goals for 2018 to invest in property? This is a goal that a lot of people have – a much higher percentage that you would realize – and why it can be a fantastic goal to aspire to, not everyone is made to invest in property. Real estate can be an incredible investment, but the fact is you have to know what you are doing to succeed. It’s not just a case of finding a property that’s within your price range, buying it and choosing to rent it out or sell it on for a profit, there is actually a lot more to purchasing an investment property than that.

Real estate is responsible for many of the world’s wealthiest people, which is why it is easy to think that property investment is an easy way to make a profit and increase your wealth. However, before making any investment, it’s better to be well versed in what you are doing before parting with your money. It is vital that you arm yourself with all of the relevant information before diving into the deep end and parting with your hard-earned money.

To help ensure that property investment is a path that is right for you, below is an in-depth guide to property investment and everything that you need to know before you even think about purchasing your first property.

 

Is investment really for you?

The first question that it is important to focus on is whether the investment is a road that is a good fit for you. Just because property investment comes with high-income potential, that doesn’t mean that it’s a good option for you personally. Whether or not property investment will be a good fit for you, will depend on a range of variables.

These include things like are you happy to have your funds tied up for a while in order to make a profit? The amount of time they will be tied up for will depend on what you plan on doing with them – you can either do them up and rent them out, or you can do them up and ‘flip’ them. Over time, rental properties have the better chance of income success. However, it can take over ten years to get the profits that you want and need from a rental property. Whereas, should you choose to do up and ‘flip’ a house, you will get the profits almost right away. That being said, this option doesn’t come with such a high return rate.

When it comes to determining whether an investment is for you, what it’s important to think about is how long you can afford to have your money tied up for. The longer you can spare it for, the higher your chances of success, and there’s no point investing in this sector if your chances of success are low. The fact is that property investment isn’t for everyone, so if you can’t afford to have your funds tied up for a prolonged period of time, you may want to go down a different investment route.

 

Clear those debts

While some people are happy to invest in property while they have debt in their name, this is not something that is advisable. If you want to ensure that you give your investment every chance of success, you need to be able to put all of your spare funds into it, not into paying off old debts. So before you start thinking about investing, take the time to get any debts that you owed paid. By taking this step, you will increase your chances of success in investment significantly, which is important when you are going to be putting everything that you have into it. Whether you have student overdrafts, credit card debts or unpaid medical bills, before you start focusing on investments, pay those debts off.

Ensure you have the down payment

Something that you should know about investment properties is that they usually require a larger down payment than regular properties. So if you haven’t already saved up your down payment, now is the time to start. Or, if the down payment that you have is low, now is the time to start adding to it. It makes sense to spend some time focusing on adding to your down payment before starting your investment journey so that you are able to make sure that you have every chance of being successful.

Just think, the larger down payment you have, the lower your mortgage will be, and the less you will have to pay each month. For an investment property, you will need to have at least a 25% down payment to put down on the property, maybe more. So it is worthwhile saving up a little extra, to ensure that when you find the ideal place, you can afford to buy it.

 

Be clear about what you want

It’s easy to make the mistake of picking any old property because you just want to get a foot on the property ladder as an investor. However, this isn’t the way to go about it. If you want to ensure that you make the right decision when it comes to the property that you buy, it’s important to be clear about what you want. If you aren’t sure what that is, take the time to think carefully about it.

What you need to consider is what location you want to buy in, who you want to rent to – students, professionals, families – how much profit you want to make, and what kind of property you want to purchase – new or old. It can be beneficial to use resources like www.LakeMinnetonkaRealEstateAndHomes.com to see what properties there are available so that you can see what your options are. Even if you fall in love with a certain property, it’s important to be mindful of what you want from the property that you buy. Loving a certain building isn’t enough, the property needs to have the potential that you need to make your investment worthwhile.

Not sure what you want from an investment property? Take the time to research what all good investment properties have, for both renting and flipping, so that you can gain a better insight into the kind of property that you need to look at buying.

 

Is a fixer-upper right for you?

A lot of people who choose to invest in property, opt to invest in fixer-upper homes. This is because these properties tend to cost less to buy, as they are in a bad state of repair. While it’s great to bag a bargain and get a quality property for a low price because it’s in need of some work, it’s important to remember that fixer-upper properties aren’t for everyone. A lot of time, money and effort needs to be put into these properties to get them ready to sell or rent out, and it is important to be aware of that fact.

However, that being said, if you are someone who has various DIY skills and knows what comes with one of these properties, it could be a worthwhile investment to make. By choosing to buy a fixer-upper property, you will get a lot more for your money, which means a larger return on your investment regardless of whether you choose to do the property up and then rent it out or do it up and then sell it on. It’s just important to be aware of all the hard work that comes with a fixer-upper property, as this kind of property isn’t for everyone.

 

Calculate your profits

Obviously, you can’t calculate exactly what you will earn, but what you can do is get a rough idea of what your profits will be, should you go ahead and invest in a property. What you want t work out is for every dollar you invest, what the return amount will be. To work this out, you will need to consider any expenses that come with owning an investment property and take them off of the profits that you expect to make over a period of 12 months.

As a rule of thumb, in the first year, your operating expenses will range between 35 and 80 percent of your gross income. If you charge $2000 a month rent, for the first year of being in investment, expect to only make a $1000 profit each month. After your first year, the amount that you are earning should rise, but it’s important to realize that it can take time and won’t happen overnight. To gain a better insight into your finances, resources like https://finance.zacks.com/much-spend-investment-property-vs-potential-rental-income-10487.html could be worth utilizing.

So there you have it, an in-depth guide to the ins and outs of purchasing your first property and all of the most important information that it’s vital you are aware of. If you are keen to invest in property, hopefully, the advice above should make starting out a little bit easier for you. Property investment isn’t for everyone, but if it’s the right choice for you, it can offer incredible financial results.