Buying Your First Investment Property? Top Tips
Buying investment properties still remains one of the favorite ways of investing. A good investment property should increase your wealth and secure your future financially. However, a common misconception exists that property investments always deliver positive returns. While this’s true most of the time it’s certainly not an instant road to wealth. One needs to keep in mind the fact that how effectively they manage the investment determines whether or not it helps them reach their financial goals.
If you are thinking about property investment, these tips will assist you choose the right investment property that will deliver profits now and in the future.
Pay Down Debt First.
Savvy investors carry debt as part of their investment portfolio, but you should probably not do so. In case you have unpaid medical bills, student loans or have triplets who are soon attending college, buying a rental property might just not be the best move.
Got the Down Payment?
Investment properties generally need larger down payments than owner-occupied buildings and have stringent approval requirements. That 3% you currently put down onto the home you live in is not going to work for investment properties. So how much will be needed? At least 20%, especially because mortgage insurance is not available for rental properties.
Beware of Higher Interest Rates.
The costs incurred when borrowing money may be cheap now, but the interest rates on investment properties will be higher. Just Remember that you will need a mortgage payment method that is low enough not to eat too heavily on your monthly profits.
Understand the property market and the dynamics where you’re buying.
Consider any other properties that are available within the immediate area and seek advice from as many real estate agents and locals as you can. Ensure you do the legal work and only consult professionals that can be trusted. Having access to independent information sources can give you valuable information on average property values, demographics, rents and suburb reports. This might increase your property’s value quicker than expected.
Find the Right Location.
Look for properties with low taxes, a school district, a neighborhood whose crime rate is low, a location with a booming job market and plenty of amenities, such as malls, parks, restaurants or movie theaters.
The benefits and pitfalls of property investment.
- · Properties can be less volatile compared to shares or other types of investment.
- · one earns rental income and benefits from capital growth (if the property increases its value over time)
- · If you take a home loan to buy a property, interests on the loan and most of the property expenses could be offset against the rental income.
- · Rental income might not cover the mortgage payments and other expenses therefore you might have to use other sources of funding to cover the costs.
- · An increase in the interest rate will increase the repayments and lower your disposable income.
- · There might be time periods where you do not have tenants whereby you will be required to cover all the costs by yourself.
- · You cannot sell a bedroom off if you need to access cash in a hurry.