Well over 5 million existing homes were purchased in the United States in 2017 alone. Out of those 5 million houses, a good percentage of them were bought as an investment property.
Putting money into an investment house is a trend growing rapidly among not just real estate investors but a number of people tired of low, variable returns from stock market investments.
When looking to subsidize or replace one’s income by putting money into an investment house, those interested should know some basics before diving in.
Below are 6 things investors should consider.
1) Fixer Uppers Take Work
A great many of investment properties come in at low prices because they need work. Whether they’re in poor condition and owners would rather unload them than fix them or if they’re being sold as-is at an auction, homes bought as an investment may need some TLC before investors see returns.
If an investor is handy and willing to get their hands dirty then great. They should have no problems.
If an investor wants to see returns without getting their hands dirty, that’s fine too. They’ll just want to find companies that can help them manage their property or simply steer clear of fixer-upper properties.
2) Ensure Financial Stability
Investment properties can pay off big time. Sometimes though, that payoff takes time.
If an investor is in a desperate financial situation and already carrying a lot of debt, so taking on more with a property may not be the right fit. Investors should ensure they’re in good financial health before taking on this kind of investment.
3) Understand Down Payment Obligations
There are a lot of programs available that help reduce down payments for home buyers. Unfortunately, these programs are typically for people planning on living at a property, not those interested in investing in them.
Because of that, an investor’s down payment obligations may be higher than they initially anticipated. One should be sure to figure out what down payment they’re looking at as an investor and have it prepared.
4) Understand Interest Rate Obligations
The same rate hikes with down payments apply to interest rates when it comes to investment properties. Remember, investors will want to make sure their monthly mortgage is not higher than the return they’re getting from their investment.
Interest rates have massive implications on this so investors should make sure they can get an interest rate that doesn’t put them underwater.
5) Estimate Margins Conservatively
An investment house is only as good as what it’s netting investors each month. In general, individual investors should target a 10% return on their property.
This should factor in maintenance costs and other things such as taxes, HOA fees, and more.
6) Start with Low-Cost Homes and Work Upward
If an investor is just starting out purchasing their first investment home, they’ll want to make sure the price is as low as possible. As a general figure, new investors should try not to exceed something in the range of $150,000.
Why?
Because not only does a more expensive home mean a higher principal investment, it also means more maintenance, taxes, and other liabilities.
In order to keep from getting overwhelmed, investors should start small and work their way up.
Wrapping up Tips to Purchase an Investment House
Purchasing an investment house can net returns much bigger than traditional investments. It can also be more work.
In order to help this process go as smoothly as possible, follow the tips above. Investors should start small, know their willingness to put time into a property and be sure to calculate their margins correctly.
If all of that is done right, investors will likely pave the way for an excellent investment property portfolio!
When looking for help with finding acceptable investment real-estate, property management services and more, look no further than Mike Walker & Associates Real Estate.
They specialize in a wide range of investment property targeted services. Those services work to alleviate a lot of the stress involved with building a profitable property portfolio.
Contact Brockwell Bone, REALTOR, to find out what they can do for you today!
