Contributed by Katie Conroy.
Investment property is one of those things that isn’t your average topic of conversation, but millions of people are real estate investors.
Perhaps your friend casually mentioned their investment property in passing, leading you to wonder if investing in real estate is a venture worth considering.
The prospect of owning two homes might sound a little scary, but the following tips and info should put you in a better position to make a financially sound investment decision.
Know the Financial Requirements
When you bought your first home you were hit with all of the financial requirements necessary to qualify for a mortgage, but an investment property is a little different.
In this scenario, lenders are more wary as any lull in rentals could make it difficult to make payments on time. For this reason, you’ll find that interest rates are higher and you’ll be expected to pay a larger down payment (15 to 25 percent depending on the number of units.)
Using a loan is nerve-wracking enough, but keep in mind that you are creating financial leverage. Leverage is borrowed capital such as a loan and according to Forbes, “this allows you to buy a much larger asset and increase the potential return on your investment than you could if you had to pay 100% of the purchase price upfront.”
Lenders will look at your cash reserves as well, so there are various loans you can qualify for such as a cash loan, traditional mortgage, or home equity line of credit (HELOC).
Take advantage of the various mortgage calculators online to get an idea of how much you can afford, as well as paint a picture of what your financial future would look like if you went this route.
Shop Smart
As you browse homes looking for the one with the best investment potential, make sure you are doing your research. Go for a drive around the area you are considering to get a feel for the community, traffic, public transportation, shopping, town center, etc.
You’ll want to explore neighborhoods as well, since they each offer different draws.
As you explore and research, collect some important data too, including local statistics on education, income, unemployment and real estate taxes so that you can perform a true comparison to other areas.
Most importantly, use an agent with experience in the investment industry, knowledge of the area, and an ROI mindset to assist you in your search.
Think Like a Renter
When you are on the hunt for an investment property, try to put your dream home out of the picture and focus on what renters want. Whether your investment property will be listed as a vacation property or a home for long-term renters, there are things renters want to see.
Long-term renters will be looking at crime rates, school systems, job industries, and the community as a whole. Key features to look for overall include an open floor plan, stainless steel appliances, adequate parking, in-home laundry, and an outdoor space.
Renovations offer an appeal as well, making the home appear like-new and showing your dedication to offering a home that meets their needs.
The good news is that there are several low-cost renovations you can do yourself such as painting cabinets, updating kitchen and bathroom hardware, replacing light fixtures, adding a backsplash, and landscaping. Some updates such as installing wood flooring or granite countertops will require a professional, but the return on investment makes it worth it.
Investment property isn’t as complex as it seems. However, it does require a lot of thought and research. Armed with the right information, you can determine whether this is a feasible investment that can bring great returns.
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