A Novice’s Guide On How To Buy An Investment Property

Posted on: April 2, 2012

Categories: Buy, How To, Other Articles, Property Management

Author: Shiela

2723279741 3cacbcf5cd n A Novices Guide On How To Buy An Investment Property

Image by wonderwebby via Flickr

For a lot of people, figuring out how to buy an investment property for the first time can seem overwhelming.¬† Usually, what stresses the beginner is not only the fact that investing in property is an ongoing financial commitment, but also the fear of failure, and the financial jargon that needs to be learned. True, you can always hire an expert to teach you how to buy investment property and thus minimize confusion and anxiety, but then, knowledge of the property market brings a fulfilling experience when you are able to reap the resulting financial rewards. Contrary to what most late night infomercials promise, investing in property will not likely produce the get-rich quick results as it isn’t as liquid as putting money into the stock market. But then, the rewards can be substantial if you’re patient and willing to do some homework.
Although the market will occasionally rise and fall, many have achieved the road to wealth through real estate. There as are a wide array of property choices to choose from Рcommercial properties, rental apartments, industrial properties, empty land, mobile homes, condominiums, etc.  All of these come with rewards and risks in both the short and long run.  A strong knowledge of real estate and locale is vital to a successful investment property venture.

How to buy an investment property – Factors to consider

First of all, you need to make sure your investment has a sizable potential return. Some important factors to consider in buying an investment property are:

Location

>Location will always impact the value of any piece of land property. For instance, when it comes to residential properties, a school district and the health of the local economy are some of the necessary considerations. Where there are commercial offices and establishments, there are sure to be available tenants. Why? It is as simple as the fact that workers need a place to live. When considering a commercial real estate purchases, consider that commercial leases normally span longer than a year.  In both commercial and residential investing, due diligence and research on tenants is a must.

Safety

>Although the building/space is excellent, it is much more challenging to get top dollar for a property in a neighborhood that has a high crime rate.

Infrastructure

> The availability of amenities and infrastructure to residents in the surrounding neighborhood can increase the appeal of your property.  Transportation, schools, malls and business offices offer convenience and comfort for your tenant as they need not head out of their immediate vicinity for shopping, entertainment, or work.

What to watch out for when buying investment property

Real estate is a complicated market but a lucrative means to make money. A few things to watch out for when investing are:

Paying more than it is worth

>You can avoid this mistake by doing research. Buy properties that are below market value, those that need little repairs and those that have positive cash flow.

Costs and tax consequences

>Make sure you understand costs for maintenance, interest, depreciation and other property-related expenses.

Overlooking rules and regulations

>Be aware of building codes and rules. Rules abound in the housing sector and fines and penalties for noncompliance can be hefty.

Not screening tenants well

>Make sure to check prospective tenants’ credit and employment to ensure they can afford the monthly payments. Treat your investment property like a business. Be ready to take a business stance when tenants throw personal problems at you like hardships on making payments.

Too  much, too soon

>Start with a small house or a duplex and decide whether this type of investment works for you.¬† Monitor and budget every cost that will be tacked on to the price including insurance. If major improvements do not provide a decent rate of return, don’t spend too much on it, as this only cuts into your bottom line.

Getting into a bad partnership

> Prime properties possess great income potential but most often, they are priced beyond the budgets of most new investors. Getting into a partnership is not bad as long as you’re comfortable with the arrangement.  A novice teaming up with a real estate professional who has knowledge of the business may be especially good for the newcomer.

With so many experts on the subject on how to buy an investment property, the information overload can be head-spinning.  Nevertheless, buying an investment property should be exciting and being informed is the best way to make smart investment decision.

 A Novices Guide On How To Buy An Investment Property
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