Read First Before Buying An Investment Property

Posted on: March 13, 2011

Categories: Buy, Other Articles, Residential House

Author: lbuen

300px For Sale   Classifieds Read First Before Buying An Investment Property

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Buying an investment property is not as simple as going to a shopping mall, window shopping and trying out which ones on display fit you and swiping plastic to pay for the purchase. There are important things to consider such as funding the investment, searching for the right property at the right price and your exit strategy. The following serves as a guide for you when buying an investment property.

Setting The Financial Stage For Buying An Investment Property

Applying For Loan Before Buying An Investment Property. Many people search for a property to invest in first before they work out their finances. However, since applying for a typical loan can take some time, getting a pre-approved loan can also be a great move. In this way, you will not be put in a situation wherein the property you are eying has already been sold while you are still waiting for the approval of your loan.

Obtaining a loan beforehand helps you objectively get a clear picture of your financial state. The process will help you  to take stock of your income versus your expenses and your other financial commitments. The creditor will also look at at your credit history and current savings. By weighing all these things, you will get an idea of how much loan you can afford to repay and for how long. Knowing this will guide you in looking for an investment property according to price range as it gives you a specific budget already. Additionally, agents and sellers will regard you as an earnest buyer by obtaining a pre-approved loan.

Securing a loan in advance also gives you time to study the different types of loans and decide on the right one that suits your needs. The choices include a fixed rate loan, variable rate loan and interest only loan.

Sorting Out Other Costs. When buying an investment property, you must realize that besides the selling price, you also have to pay for other fees, including taxes, legal fees, local government transfer fees and insurance fees that accompany buying an investment property. You also have to prepare to pay for the downpayment which is nowadays often at 20 percent of the selling price.

Searching For The Property

An agent can help you look for the investment property that suits you. You can also register in online sites that help you find the property to invest in. Attend local real estate investment club meetings and network with wholesalers. Leverage  social media and online classified ads in broadcasting your search for a specific kind of property. Your family, friends and social network may also be the link to the property you are looking for. Just make sure to be clear on the kind of property you will invest in.

When deciding on the property to invest in, an important factor to consider is your strategy for the specific property. Are you going to keep it for some time and rent it out?  Are you retailing it? Is it residential or commercial? These considerations may affect the type and location of the property that you choose. Some savvy investors say that it would be better to have a so-so building in a great location, rather than own a great building in an undesirable location.  This usually boils down to how much headache are you willing to put up with for higher cash flows.  Buying a $5,000 fixer upper to hold as a rental does you no good when the tenants stop paying after 4 months.

Buying An Investment Property – The Real Deal

Making An Offer. So comes the big day for you when you make your actual purchase. Buying an investment property typically starts with you making an offer for the property. You need have your earnest deposit money ready, usually $500 – $2000 for smaller deals and up to to 10 percent sometimes for larger deals.  When participating in an auction, such as a sheriff’s sale or bank auction, 20 percent of the purchase price will be required upfront before you can bid. When buying from a private individual try to keep the amount as low as possible, so as not to tie up your money for an extended period of time while sale process works its course.

You may also need to brush up on your negotiation skills. You also must study and understand the terms before inking any contract or agreement.

Sealing The Deal. Once you have agreed with the seller, you may now call your lender for the loan so that you can finalize the purchase. With your pre-approved loan, you can breeze through the process. Once you satisfy all the conditions stated in the contract, the sale pushes through and you now own the property, with the help of your title and escrow specialists.

The process of buying an investment property must be clear in your head before getting involved in one so that you can chew over important factors such as funding and your exit strategy.

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