Buying your first investment property can be a huge step! If you’re considering buying your first investment property, congratulations! Think of Edge Realty as your investment property big brother, here to give new investors the tips and tricks they need to get started. Investment properties can help generate passive-income that will come in handy in the long-term.

However, investment properties come at a cost, hence the term investment. Let’s discuss the tips that every new investor should know before taking on an investment property.

Time and Money

The real estate market is in a constant ebb and flow cycle. When considering purchasing property, keep an eye on the overall economy and real estate markets to know when it is the best time to buy.

The longer you hold onto your investment property, the more profitable it can be. This is because resale values can rise as an economy changes, which can be referred to as property appreciation. However, keep in mind, real estate can take a long time to return a profit. Whether you’re becoming a landlord or looking to sell off your investment for a higher return, it could be a while until you receive any profit. Investment properties are not a short-term solution for income.

Plan Ahead

Before you buy property, it is extremely important that you are both financially and mentally ready. There are potential risks involved with purchasing investment property. These risks include:

• Unexpected major repairs

Whether you’re a landlord or running an AirBnb, you will need to be prepared for regular wear and tear on the property in addition to possible unexpected costly repairs. If your home’s HVAC system goes, or your roof springs a leak, you must be ready to fix those issues immediately, or you risk major issues for your future profits.

• As a landlord, your rental property may not always have a tenant.

Sometimes, due to a variety of factors, your property may not have a tenant to rent to. Without a short-term or long-term tenant, you will not make a profit on the property. While the property remains vacant, bills for utilities, landscaping, taxes, and mortgage will continue to accumulate, with or without a tenant.

If you’re a first time investor, we advise that you take care of yourself before you make the decision to go all in on an investment property. It could be a poor decision to purchase a property without any sort of emergency fund in your back pocket. Life happens outside of your investment, and since it could take time to gain any profit off your property, having a savings to fall back on is a good idea.

Your credit score should be as high as you can get it prior to attempting to purchase an investment property. Most lenders will require a score of at least 740. To avoid taking on a loan with high interest rates, you should be sure that you’re prepared to pay your loan back on time, and make sure that other debts are paid off too.

Questions to Ask Yourself

Is your high-interest personal debt paid off?

Medical bills, loans, and credit cards can take a big chunk out of your income. Though it’s quite difficult and sometimes impossible to not carry any debt, having the larger, high-interest personal debts paid off will put you in a much better position to take on an investment property.

Have you saved up enough money for the down payment?

Investment properties tend to require higher down payments. Though the cost is higher, there are benefits to putting more money down! The more money you put down, the better your interest rate and loan terms will be.

Do you want to be a landlord?

Managing a property can take up a surprising amount of your time and money. Typically, the most successful real estate investors use property managers to oversee the daily tasks and details of managing a property.

Do you have an emergency fund ready?

As a landlord and or investor, you should always have money on hand for unexpected repairs and fees, in addition to being able to pay for the down payment and closing costs on the property. At the end of the day, you will also need to be able to afford your own life outside of the investment property, with or without profit coming in from it.

Be willing to ask questions! Having an experienced source of knowledge and resources at your disposal will be a huge help in the first-time investment property buying process. Edge Realty is here to help.

If you’re considering taking the plunge into the world of investment properties, Edge Realty can help you make informed decisions. Send us a message, or give us a call at 501-843-4663!