6 Things to Know Before Buying an Investment Property
With the growing popularity of vacation rental homes, the market for buying an investment property has also grown. The ease and numerous advantages that come with an investment property make it an appealing choice for building up your savings. We’re here to help you decide whether it’s the right investment opportunity for you by highlighting the key factors every investor should know.
Types of Investment Properties
There are three general categories of real estate investment properties that have different associated costs: residential, commercial, and industrial. If you’re looking to rent out a space as a vacation home or lease it as a living space you’ll be in search of a residential property. On a larger scale, there are commercial real estate properties which include office buildings, restaurants, and strip malls. A third option is industrial spaces such as warehouses and factories.
Key Factors of Ownership
1. Maintenance Costs
When you first buy a property you may have already set aside part of your budget for repairs. However, those costs will not end after your initial fixes. Anything from cleaning fees to air conditioning maintenance can set you back on a monthly basis. Taking every maintenance cost into account beforehand will create the best prediction for your total budget.
2. Taxes and Insurance
Just like with any home or property, there are tax implications and insurance requirements to be aware of. Residential properties in particular require a different type of homeowner’s insurance called dwelling property insurance. This will help protect your rental income from any loss that could come from your tenant’s belongings while still insuring your permanent fixtures and appliances.
Unlike other costs, utilities have two options. The first is to include the utility fee in your tenant’s rent. This route allows you less budgetary concern. However, this would mean higher rental costs and possibly fewer interested renters.
If you can factor in utilities to the renter’s payment without it hindering demand, take this option to simplify the management process.
4. Repairs and Renovations
The growing popularity of “fixers uppers” has pushed the movement for renovating investment properties. While fixing up a property can bring in large profits, it can also put you at risk of high costs and not receiving a return on your investment. Take extra time to plan your designs and renovations so you can put together an estimated total cost. Consider making extra room in your renovation budget for any problems or changes that may arise.
Before you take any financial steps remember to look into the rental laws in your area. Depending on your location there are set landlord laws such as health codes you must follow that make your property eligible for leasing.
There are two ways to run an investment property: manage it yourself or hire a property manager. Having a property manager takes the day-to-day responsibilities off of your plate and provides you security knowing that it’s in experienced hands. Managing it yourself may save you money short term, but it requires flexibility to handle issues whenever they occur. For example, you could have a tenant that is misusing or damaging your property, and you would be responsible for dealing with that tenant.
6. Prime Location
When estimating the profitability of a property, location is one of the most important factors to consider. It’s vital to ensure that the monthly rental income would be more than all of your monthly expenses. A location with an abundance of renters will ensure there is demand for your property and you’re not left scrambling for a tenant.
Let Our Team Guide Your Investment
We understand that buying an investment property is a big decision, but with the help of your team at Chris Doering Mortgage, we’ll guide you each step of the way with our professional knowledge and expertise. Whether you are looking to make a large purchase of a commercial property, or you’re wanting to renovate single-family homes, we are ready to provide you with all of the information you need. Contact us today to get started.