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5 Questions to Ask Before You Buy an Investment Property

confused photoEveryone’s heard about real estate investing. Whether it’s Will Rodger’s famous quote, “Real estate is the best investment in the world because it is the only thing they’re not making anymore,” or legendary Manhattan real estate investor Louis Glickman, who said, “The best investment on earth is earth,” people who are building wealth tend to invest in real estate, and with good reason. Real estate has a stellar reputation for building wealth and positive returns, but that doesn’t mean that all investments are equal.

If you’re new to the idea of investing in real estate, here are 5 questions to ask before you jump in. If you’d like to talk to someone in person, feel free to email one of our agents or call 330-364-6648 and we can help find out if investing in real estate is right for you.

1) Are you ready to make an investment?

Investing in real estate isn’t for everyone. While you don’t need to have been featured in Forbes to buy your first rental property, you do need to have a good grasp on your finances. The days of easy zero-down home loans are over. Real estate isn’t a get rich quick scheme, but a way to let your net worth work for you. If you’re unsure, talk to a financial adviser to see if investing in real estate is a good fit for your overall financial plan.

2) What kind of property should you start with?

house photoReal estate investing is a large and complicated field, encompassing small rental houses, large apartment complexes and commercial rentals, not to mention more in-depth investments for agricultural uses, land speculation and mineral rights. First time investors commonly start out by trying to “flip” a home for profit or by buying a single rental property. There are dozens of ways to invest in real estate, but if you’re starting with a small residential property, keep an eye out for these things:

  • Well maintained homes. While there are some good deals to be had, often the cost of making major repairs can make it difficult to achieve a positive ROI (return on investment) on those investments.
  • Avoid high-end homes. Again, it’s possible to make money in that space, but in general, several lower cost homes will bring a greater return than one higher cost home for the same investment. Leave the higher priced homes until after you get your feet wet.
  • Turn your personal residence into a rental. Owner-occupied homes usually get the best loan rates and, having lived in the home already, you probably have a pretty good idea of what repairs and maintenance will cost. Assuming you’re looking to upgrade housing, and have the cash for a down payment without selling your current home, this can be a great way to get started.

3) What’s the neighborhood like?

In real estate, location is everything. The last thing you want is to constantly struggle to keep renters in a nice house in a bad location. That doesn’t mean that you should only invest in the fanciest parts of town, but have a good idea of what you’re getting into. Consider driving by a potential investment property at different times of the day to see what everything looks like.

4) Do you know all your expenses?

calculator photoOne mistake many first time investors make is to underestimate the expenses associated with investment property. Most people know that homes need repairs sometimes, but fail to realize that those repairs aren’t all leaky faucets and repainting. Occasionally houses need new a new roof or a new heating and cooling system. There are also a whole host of smaller expenses that add up. Things like water/sewer costs, garbage pickup, utilities, legal fees, accounting, evictions, vacancies, office supplies and a whole host of other costs have to be included when you’re making your investment decisions.

5) Do you have an exit strategy?

Always start with the end in mind. Know what you’re going to do with a property before you buy it. In our area, if you buy a potential rental home by taking out a mortgage, it’s possible that the rental income won’t do much more than pay the mortgage and upkeep expenses, which means that it may not add significantly to your monthly income. Which doesn’t mean that it’s a bad investment. In 30 years you’ll own the property free and clear and it likely cost you nothing out of pocket. At the same time, a run down house, bought for a good price and fixed up can make some quick cash in a flip, but won’t earn you any residual income. Knowing what you’re trying to accomplish before you start is critical in getting where you want to go.

No matter what your goals are, if you’re new to real estate investing, it’s always a good idea to talk to a professional. At McInturf Realty, many of our agents have worked with real estate investors for years and can help you get a good idea of whether or not it’s the right avenue for you. If you need someone to talk to, make the call to 330-364-6648 today!

 

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1110 Tuscarawas Avenue NW

New Philadelphia, Ohio 44663

Phone: (330) 364-6648

Fax: (330) 364-2355

email: makethecall@mcinturfrealty.net