When looking at the life stories of the world’s rich and famous people, you’ll notice that many of these millionaires and billionaires made their fortunes through investing in things like real estate.
While not everyone buying investment properties is bound to become rich, owning real estate is one way to build a solid financial foundation and become financially secure. Buying an investment property means enjoying the monthly cash flow. Add to that the fact that the property will continue to grow in value, and that you can cash in for a significant ROI in the future.
But before you find a realtor and search for an investment property, you need to know you’re ready. For example, if you are considering timeshare ownership as an investment, keep in mind that it comes with potential risks so you need to have an adequate understanding of getting out of a timeshare contract when something goes wrong. Continue reading to look at things you need to consider before taking the plunge.
Consider Your Budget
When buying your first investment property, there’s wisdom in selecting something well below what you can afford. So, if you’ve run the numbers and believe you can afford a home worth $400,000, buy one for $300,000 or even $200,000 your first time around.
You’ll likely run into unexpected expenses with whatever property you buy, so it’s best not to spend every penny of your budget on the purchase price. An investment property can be a blessing. But if you overextend yourself, that blessing could morph into a curse. If you can’t afford to buy a property right now, there are other ways to invest in real estate.
Consider Your Funding
Will you buy an investment property with cash, or will you need a mortgage? How much of a downpayment can you afford if you need a loan? You’ll usually need to make a larger downpayment for an investment property than you will for your primary residence. So, keep that in mind. If you need a mortgage, look around for the most favorable terms available to you.
Consider Your Debt Load
Are you currently drowning in debt? If so, now’s probably not the right time to buy an investment property. According to one source, the average annual percentage rate (APR) for credit card accounts in the third quarter of 2022 was 16.27%. This was up from the second quarter of this year when the average APR was 15.13%
If you have a heavy credit card balance and aren’t making much headway in paying it off, you shouldn’t add to that by taking on a mortgage loan. Remember, too, that the purchase price for the home is just part of the cost. You also need to consider repairs, maintenance, and taxes.
Consider How You’ll Look After It
Are you a Jack or Jill of all trades? The problem is that it’s hard, if not impossible, to do everything yourself. Managing a rental property is a 24/7 job. You need to market your property, find and vet prospective tenants, handle tenant concerns, take care of repairs and maintenance, and more.
Many investment property owners sign on with a property manager right away, and others do so after trying to do everything themselves and finding it to be an impossible task. So, before you buy a rental property, it makes sense to figure out how it will be managed.
Consider Where You Want to Buy a Property
It’s also important to figure out where you want to buy a property. There are many online tools you can use to check out different communities in your state or other states. One thing to consider is that it’ll be a lot easier if you buy an investment property close to where you live. Even if you hire a property manager, you won’t want to be located too far away from the asset.
Make Sure You Know What You’re Getting Into
Buying an investment property can be a great way to build a solid financial future. But you’ll want to ensure you make an informed decision, which means considering the above points. Adding real estate to your overall investment strategy can be a financially prudent move.
