7 Helpful Tips for Purchasing Investment Property

Real estate agent with house model and keys

Real estate can be a very stable investment, and it has produced some of the wealthiest individuals on the planet. Unlike stocks or many other investments, real estate can cost you well over six figures per transaction, so it’s important to make sure you do it right.

Knowledge is one of the best ways to prevent costly mistakes, and there are at least seven great tips that you can use for purchasing investment property.

Get a Good Down Payment

In most cases, you’ll find yourself needing a larger down payment for an investment property. If you’re trying to get a loan for the money, you’ll find that the approval requirements for investment properties are much stricter than owner-occupied buildings.

It’s very unlikely that you’ll be able to purchase an investment property with a down payment of only three percent. Before you even think about purchasing an investment property, get ready to pay a down payment of at least 20 percent.

Make Sure You Can Handle It

You’re the only person who knows if you’re any good at repairing drywall or using tools. If you purchase an investment property, you should also know how to unclog a toilet. The problem is that not knowing how to do any of these things will require you to hire professionals, which can cut into your profits.

If you don’t have a lot of spare cash and don’t like getting your hands dirty, then you might want to reconsider purchasing an investment property. Before you purchase the property, make sure you can handle everything that being a landlord entails.

Pay Off Your Debt

Many savvy investors don’t mind carrying some debt, and they factor it into their overall portfolio. However, if you’re an average person and looking to buy an investment property, it’s better to pay down your debt before you make a purchase. If you have a lot of unpaid medical bills, student loans or other debt, you should get these debts paid off before you look for an investment property.

Properly Calculating Margins

The margins are what make owning an investment property profitable. Many of the biggest Wall Street firms try to purchase distressed properties that will provide a return of five to seven percent because they know they’ll need to pay staff members.

The average person should set a lofty goal of 10 percent. Annual maintenance costs should be calculated at one percent, and you don’t want to forget landscaping, pest control, property taxes and HOA fees.

Avoid High Interest Rates

Right now, the cost of borrowing money is quite low, but you’ll almost always pay a higher interest rate on an investment property. It’s important to avoid high interest and secure a mortgage payment that is low because you don’t want it to eat into your profits.

Avoid Distressed Properties

If it’s your first time purchasing an investment property, you don’t want to purchase a property that needs to be fixed. You would have to be very good at home improvement or have a large team working with you to make ant profits from a salvage property.

Purchase a Cheaper Property

There is nothing wrong with purchasing a cheaper investment property. An expensive property will come with higher ongoing costs, and you might not be prepared to pay for these costs.

For your first investment property, it’s a good idea to shoot for something in the range of $150,000. These are seven helpful tips that will help you achieve success when buying your first investment property.