Purchasing Investment Properties: What Should I Keep in Mind?

Written by Olya Doronyuk

June 30, 2020

When it comes to investing in real estate, the first thing that comes to mind is whether it will be a lucrative investment that can potentially boost your investment portfolio. If you’re about to buy your first investment property, you’re probably wondering what the most beneficial way to profit from it is. While property-flipping is usually a short-term investment, managing rental properties has some attractive long-term benefits like tax breaks and consistent cash-flow.

The risk of investing in buy-to-rent properties is pretty high, but if approached properly the financial perks can make the payoff worth it. There’s a proven theory that 90% of millionaires generated their wealth by investing in real estate, which makes becoming a property investor a promising idea. 

Let’s take a look at a couple of points to help you smoothly get into property investment: 

Put together a mortgage plan

Before deciding on a mortgage plan, assess your financial situation and the types of loans available in your area. First-time homebuyers often find it difficult to select the most convenient loan for them. But there are tools that can help calculate monthly mortgage payments in accordance with a total home’s price and down payment. It can also estimate taxes, principal and interest, HOA fees, etc. 

Keep in mind that your credit history (along with the down payment) can affect your mortgage options. So high credit scores mean you’re getting much lower interest rates. 

Location matters 

Choosing the right location for your investment property is the key to getting a higher return on investment. If your rental property is located within walking distance to schools, shopping areas and other facilities, you’re likely to attract more prospective tenants. Thus you can keep your vacancy rate at a lower level and have a steady income flow. 

Amenities including air conditioning and access to the Internet are also the elements that define the number of people willing to rent from you. If these aren’t included keep a budget in mind of how much you can spend on improvements to make your rental worth more.

All in all, the right location means that you’ll be able to get the highest rent prices and the lowest vacancy rates since your tenants will stay longer. 

Know your audience

It’s essential that when marketing your rental property, you reach the right people. Proactive online and offline marketing techniques will help you fill vacancies faster and keep your potential tenants satisfied. In the areas close to campuses, for example, focus on potential student tenants. By promoting your listings directly to them, you might get a new resident in a blink of an eye. 

The easiest way to advertise your vacant units is to post them on listing websites such as Oodle or Zillow. You can also take advantage of property management tools like Rentler that is one of the most-used websites for property listings, or TenantCloud that provides personal listing resources and allows you to share your listings on other partner platforms. 

Another listing option worth mentioning is Facebook Marketplace where you can add any details regarding your rental properties and choose whether you want to cross-post your listing to your profile or other relevant Facebook groups. 

Keeping track of financial records

To know if your rental property is a profitable investment and brings you any financial rewards, keep track of all the property-related transactions. For that, use accounting systems or property management tools with a full accounting dashboard. It’ll help you monitor the flow of expenses and income and view other transaction details that might affect your financial situation in the future. Also, consider the 1 Percent Rule to make sure you’re generating positive cash flow. The rule says that the rent per month should be equal or greater than 1% of your total investment. 

If you’re not sure you can handle new landlord responsibilities, there’s always an option to delegate. Hiring a property manager is a good way to ensure your investment property is managed on a professional level. But property managers aren’t cheap and the value they bring is sometimes hard to predict. However, for inexperienced property owners, having someone who knows the industry insights is an effective hands-on approach for a first investment property.

Do you have any other tips on buying an investment property? How many rental properties are included in your portfolio? 

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