Lately, real estate investing has become the talk of the town. At first glance, it seems like an easy way to create a consistent passive income; however, there is more than what meets the eye. Before buying an investment property, there are a number of things an investor should consider.
First off, it is important to not let emotions get involved, which is important for any investment. In life, people always tell you to “listen to your heart”, but that logic doesn’t hold when buying a home. The rule of thumb is, instead, don’t let your emotions affect your decision in any way, shape, or form; buying an investment home is purely a business transaction. That being said, the lower the price you can get for the home, the better the odds that you can earn a higher profit for the house.
Second, do your research and due diligence. Choosing to buy a property is not a quick decision as many factors need to be considered such as location, taxes, and local laws. Using a firmly analytic approach will allow you to approach buying an investment house with an unemotional mindset and create the best economic situation. In this same mindset, be sure to calculate the future expenses and profits that will come from your investment house. While the numbers themselves are clearly forecasts, these calculations will help you stay within your desired range. Along with expense calculations, you should consider the investment loan options available to you. Doing the due diligence to observe the benefits and freedom of each will provide you with the best sensitivity analysis.
Next, be sure that you have 20% to put down on the investment property. For a house, only a 3% down payment is required and then the homeowner will get private mortgage insurance as a result of having less than the 20% mark. However, for an investment home, mortgage insurance is not an option.
Fourth, be sure to keep the first investment house at a reasonable price. Your first investment house should not be a lavish house costing more than half a million dollars; but rather, experts recommend that the first house is around $150,000, even if you have a million dollars to invest. Tying back to the second point, having a low-value investment will help be sure your expenses are within the range you can afford.
Fifth, be sure to pay off your debts before getting an investment house. In this day and age, the cost of borrowing is often overlooked. Although a few percentage points do not seem large, getting rid of all debt before buying an investment house creates a clean slate. Thus, an investor at this point should have no debt, student loans, or medical bills still on the table.
Lastly, if you are taking on an investment house with a partner or spouse, be sure to carefully consider your partner. There are many implications to a partnership agreement that often aren’t considered upfront. The person you choose as a partner is someone you should be comfortable with and someone with which you possess a certain level of trust. The partner is not just someone who is willing to fork over the money, but someone you have a personal relationship with.