Diving into the investment world is an exciting and thrilling adventure! For first-time investors, it can be a bit overwhelming as the responsibilities that you take on when you purchase such a property are a lot greater than the standard purchase of an owner-occupied home. However, if you work with an experienced agent and find the right property, this experience can be incredibly rewarding and lead to more investment opportunities.
Purchasing an investment property is a bit different than the typical home buying experience.There is so much you’ll need to take into consideration before you commit to investing in a property including location, neighborhood, the current housing market, maintenance fees, rental history, interest rates, and so much more. To ensure you’re getting the most out of your investment, it helps to do your research before making any decisions.
Chandler Investment Properties offers a range of high-end furnished and unfurnished homes including apartments, townhouses, and rental homes out of South Carolina. If you’re considering taking the steps to becoming an investor, it’s comforting to put your trust in a well-established, highly renowned company and a knowledgeable real estate agent. To further assist you in the process of buying a Chandler Investment property, we’ve compiled this handy guide explaining the risks and rewards, the necessary steps you’ll need to take, and a few tips and tricks to get the most out of your endeavor.
Risks Vs. Rewards
There are advantages and disadvantages to every real estate purchase and investment properties are certainly no exception. We’ve laid out a few of the risks and rewards to investing and we’ll leave it up to you to decide whether or not this endeavor is worth your consideration.
Rewards:
- Regular monthly income equals a predictable and steady cash flow.
- Because this income is passive, you can earn money while focusing on your primary occupation.
- As the real estate values increase, so will your investment value. It’s also worth noting that real estate values are typically more stable than stock market values.
- The interest that you pay on an investment property loan is tax-deductible.
- Owning and managing an investment property provides financial freedom and frees up a lot of your time.
- You’re able to deduct related expenses from your rental income including mortgage interest, property taxes, insurance, maintenance costs, property management fees, and utility bills.
Risks:
- Your total rental income may not cover your entire mortgage payment.
- Although rental income is passive, it can be a little frustrating to deal with tenants without the use of a property management company.
- Unlike an investment such as stocks, you aren’t able to sell real estate on a whim if the market changes or you need extra money.
- Investing in a rental property can be quite expensive and not everybody has the means to break into that world.
- There are a lot of responsibilities involved with being a landlord and whether you have a paying tenant or not, you still need to cover the cost of expenses.
- Property maintenance costs and unexpected repairs or damages take up a lot of time and money for a property manager.
Steps to Purchasing a Property
The average process of purchasing real estate is fairly similar. There are just a few differences between traditional, owner-occupied purchases and investment purchases and here, we’ve outlined the steps to the latter. Continue reading to get a glimpse of the exciting steps that are needed to invest in your very own rental property.
1. Get pre-approved for financing and secure a downpayment.
The very first step to any real estate purchase is to find out what you can afford. Purchasing a house can be very expensive and investment properties require a larger down payment than a typical owner-occupied property.
Investment properties generally require a 20% downpayment and while that seems like a large sum, you do have options. With a strong credit score, you can work out a loan agreement with your bank or a local lending company. In some cases, if you’re willing to live in the property for at least a year, you can get your down payment reduced to as little as 3%. Talk with your local lenders and find out what you can qualify for and if they have any financial assistance programs.
2. Tour several properties and find the right location for you.
Making the choice to invest in a property is a major decision, one that should not be taken lightly. You need to be willing to research and tour multiple properties until you find what is going to work best for you. Chandler Investment Properties offers many different options from apartments to townhouses for your consideration.
Depending on who you want to take up residence within your rental property, you’re going to want to consider your surroundings. A young family is going to want to be close to top-rated schools, working professionals are going to find a place close to job opportunities, and those without access to their own vehicle will look for a place along public transportation routes.
One of the greatest skills an investor can obtain is the ability to analyze rental properties. As you delve further into the world of real estate investment, you’ll come to recognize the signs of a good investment, predicting your potential income, and balancing out your landlord duties and possibly introducing a property management company.
3. Take care of your due diligence.
There’s a lot that happens after you’ve found that perfect property and everything that you do between signing the contract is your due diligence. Once you’ve found your potential property, you need to schedule inspections with a property inspector, pick a title company or an attorney to assist with the closing and go through all of the necessary paperwork and documents, and verify the rental amounts with any current tenants that are coming along with the property.
You also need to decide if you’ll be hiring a property manager or maintaining the building on your own. Many property investors prefer to line up a property manager, taking some of the stress of landlord responsibilities off of your shoulders. Self-managing is a great way to save a bit of money instead of hiring a property manager, but it’ll require more time and effort on your part. Weigh the pros and cons of each option and figure out what will work best for you. This time of due diligence is the perfect time to make this decision.
The final aspects to making everything official is to get insurance on the property and to finish signing all the paperwork. Once that’s all taken care of, you can wire your downpayment, close on the property, and begin your exciting adventure as an investment property owner.
4. Look into investing in landlord insurance.
As an investment property owner, you need to cover not only your newly acquired building, but yourself as well. That’s why, on top of homeowners insurance, you should consider landlord insurance. This will generally cover you in the event of property damage, lost rental income, and liability protection.
In some cases, insurance providers will allow for bundling between landlord insurance and homeowner’s insurance policies. Do your research and figure out which company is going to give you the best bang for your buck and keep you and your property protected.
5. The work has just begun; it’s time to start managing.
Making it through the arduous process of finding the perfect property, negotiating prices, surviving inspections, and going through all the paperwork is a task to be celebrated! However, that’s just the beginning. Once you’ve found that sweet spot that’s passed all inspections, you’ve hired your property manager, and the documents are officially signed over to your name, you can move on to the management phase.
You’re going to be in charge of finding tenants, working out rental prices, taking care of any damages or repairs that may come up, and maintaining your building and any grounds that come with it.
Whether you’re looking to invest to make a little extra cash on the side of your main gig or you’re hoping to make this your primary source of income, you have so many options to look into within the real estate world.
Tips & Tricks:
There are several ways to invest smartly. We’ve put together some of our top tips and tricks to getting the most out of your investment purchase including everything from the type of real estate that you purchase to predicting your margins. The following are just a few things to keep in mind as you consider investing in a Chandler Investment Property:
Purchase a low-cost home.
Many experts recommend that first-time investors begin with a home around $150,000 within an up-and-coming neighborhood. The more expensive the home your purchase, the higher you’ll find your ongoing expenses to be. You want to make sure you don’t buy a complete fixer-upper, as you’ll need to sink a lot of money into renovations, but you also shouldn’t buy the most expensive house on the block.
Consider buying versus financing.
You’ll have two options when it comes to buying an investment property: buying or financing. Buying a home with cash means you’ll be protected against vacancies and market downturns. Without a mortgage, you’ll also be blessed with lower out-of-pocket expenses. On the other hand, financing will give you the best possible returns on a property. For example, if a property value increases, an investor will have put less down initially and can then receive much more than the original capital.
Calculate your margins.
A good typical goal in an investment property is a return of approximately 10%. Approximately 1% should be estimated for maintenance costs, annually, and other costs to consider include homeowner’s insurance, landlord insurance, possible homeowner’s association fees, property taxes, and any monthly expenses such as pest control and landscaping.
Calculate your operating expenses.
These operating expenses include property taxes, insurance, utilities, trash collection, accounting and legal fees, and possible snow removal and pest control. On average, these expenses will be between 35-80% of your gross operating income.
Related Post: The Top 10 Reasons to Invest in Real Estate
Be realistic in your calculations and expectations.
It’s safe to say that your investment property is not going to produce a huge paycheck right off the bat. You need to be smart about how you’re investing your hard-earned money and you especially need to be prepared for any unexpected costs. Make sure that you have enough money set aside after your initial purchase to account for any potential emergency that might come up. This could be repairs to a roof due to harsh weather, it could be burst pipes in the kitchen or any number of costly repairs. It’s safe to have approximately 20-30% of your rental income set aside for just such an occasion.
Understand your legal obligations and responsibilities.
You need to become familiar with the landlord-tenant laws in order to properly function as an investor. You need to understand your tenants’ rights and how you should be fairly conducting business in regards to security deposits, lease requirements, and eviction rules, among many other responsibilities. You need to know everything from the tenant law to fixing leaky faucets or replacing light bulbs.
If you’re looking to jump into this exciting world of real estate investment, be sure you fully understand all that comes with the purchase of a property. It may not always be a walk in the park, there are definitely ups and downs along the way, but if you can find the right location, produce faithful tenants, and stay on top of the maintenance and management of a property, you may just be blessed with an incredibly rewarding and exciting experience!
