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How to Buy Investment Property
Learning how to buy investment property is a headache for many – let’s make it simple!
First thing’s first –
Should You Buy Investment Properties?
Alright, so when is it the right time to buy investment properties? The truth is, if you weigh out your pros and cons and really look at all necessary procedures, you could start looking at new investment properties sooner than you think.
Pros & Cons of Buying Investment Property:
Pros:
- A constant stream of income
Each month, at least one person will be sending you a certain amount money. If you invest enough, being a landlord can be equal to a full-time job.
- Capital growth
Imagine this: you buy a property at a semi-good price, you (and your tenants) take care of it and when you want to sell, your property increases in value. Win, win.
- Tax deductible interest on an investment home.
Says it all.
Cons:
- Hard to sell
In reality, property investments are extremely hard to sell.
- Your income depends on the property market
It’s true you’ll still be getting money. But your income will depend on the stability of the property market. If it goes down, your money will go down with it.
Where Can I Buy Investment Property for Cheap?
Some of the best states where you can find the cheapest way to buy investment property are Florida, Michigan and Bakersfield, CA.
The Balance lists top 3 websites where you can find investment property for sale:
Speaking of cheap investment properties, what about buying with no money down aka buying when you’re broke?
Don’t worry – I got you covered.
Tips to Buy Investment Property with No Money Down:
- Give it a good thought
No, really. Being a landlord sounds fun, but if you don’t have a hands-on approach and a couple of management skills under your belt, you might as well sign up for a job from hell. Along with patience, you will also need time. So, do you have time? Next question you need to ask is, do you have at least some money?
Before you purchase a rental property, you have to make sure all your debt is paid off. Trust me, having debt when buying a home as a landlord is practically impossible. On top of that, you need to make sure you have sufficient funds to make your down payment – calculate it at at least 20%.
- Low mortgage
Being a landlord is a long-term commitment and real estate market changes on the daily – especially when it comes to the interest rate. Your mortgage should be low enough so you can still make a profit out of your new rental income.
- Go for a bargain house – IF you’re hands-on
Buying from a cash buyer is a perfect choice for those who are hands-on, looking to do repairs and treat their new investment property as a project. It’s a lot of work – but remember, only go for a bargain-type house if you’re aware of what it will take to fix it.
- Go for a hard money lender
What is a hard money lender? Someone who lends you money at a high-interest rate. Why should this interest you? It’s a perfect choice for short-term real estate deals, especially if you don’t have the money to invest at the moment.
Mike LaCava from quickanddirtytips.com states that “just be aware that you can typically expect a hard money lender to loan you money at anywhere between 14% and 20% interest, with perhaps 4 to 6 points on top of that. A “point” equals $1,000 for every percentage point of the loan – therefore, four points on $200,000 would equal $8,000.”
- Mistakes most new landlords make after buying investment property
You probably wouldn’t be reading this if you weren’t at least 60% interested in purchasing a residential investment property. Luckily for you, plenty of homeowners went through the process and were able to share some mistakes they learned along the way – so you won’t have to.
- Not getting familiar with the real estate tax system
Your property taxes WILL go up. Make sure you base your rental price on your new mortgage bill and adjust if necessary.
- Not being a real landlord
I said it before – being a landlord means you will have to be hands-on. It doesn’t matter who you’re renting to. If it’s a family, something will break. If it’s young people, something will break. If it’s old people, something will break because they weren’t sure how to use it.
As a real landlord, you will have to make frequent visits to your house. Get to know your tenants beforehand if possible, so none of their habits surprise you. Absolutely make sure you take inventory and clearly state which repairs will be your responsibility and which will not.
- Not screening your tenants
Responsibility is key. Responsible tenants mean fewer repairs and more profit for you. It means better relationship and an overall reduced stress – the last thing you want is to see a trashed house when you come for a visit.
- Being too good to your tenants
Good tenants are a rarity, but at the end of the day, real estate is a business. If your tenant will not pay rent on time and it causes you stress, you will have to do something about it. If you don’t put your foot down and set rules, you might just have to watch your house get completely destroyed.
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Have we missed something? Do you have any tips on how to buy investment property and how to buy it with no money down? Leave us a comment below!