An investment property is a real estate asset purchased to generate an income. Buying a property for investment intents can come with difficulties, such as financing requirements, maintenance costs, higher interest rates, and larger down payment than traditional homes; however, such a property allows you to generate income by renting or reselling it. If you plan to buy an investment property and don’t know where to start and what steps to take, here’s a short guide with a few basic actions.
Study the Market Trends
You want to get a property that increases in value with time; however, how can you figure out which areas will become the next best places in which to buy real estate? To work out this step, you need to watch and research an area’s housing market indicators and overall trends and compare the course of previous property prices and taxes to the current situation. Overall, it’s paramount to find the right area before applying for a loan, so take your time to study the market trends and decide wisely.
Hire a Qualified Real Estate Agent
Unless you’re a realtor yourself, it’s in your best interest to hire a qualified agent with the skills, experience, and knowledge in this field. A real estate agent can help you time your purchase and sale, put the property on the market for the right place (if you decide to resell it), and find the right buyers. Or alternately, they can help you choose the ideal property, find renters, and advise you on relevant laws.
Secure the Finances
Unless you’re paying the property in cash, you’ll have to determine where you get the money from. Financing an investment property can be a bit different than financing a regular home, so you should expect lenders to require excellent qualifications, as they usually consider these types of mortgages to be higher risk than loans on owner-occupied houses. Taking this into account, when it comes to investment property financing, you need to have a preapproval for a mortgage or have otherwise secured the funds before you start looking at properties. One option is to go for a loan from BD Capital, a private lender that offers fast and creative solutions for urgent financing needs.
Find a Place
As soon as you have the finances and find a property you’d love to buy, put an offer on the place. Once you’ve made an offer, you’ll enter the inspection process, whose purpose is to help you uncover any potential problems in need of fixing in the house. For instance, an inspector may analyze foundation issues, the roof, whether or not there’s mold in the place, electrical components, and so on.
After all inspections and appraisals are complete, and you reach final terms with a buyer, you’ll need to proceed to the formal closing step, which can be an expensive process, with fees that can take between 2 percent and 5 percent of the mortgage. You also need to expect to pay for title insurance, title searches, mortgage fees, local fees, and other expenses.
Manage the New Property
After becoming the owner of the new place, you must decide whether you want to handle the management part yourself or hire a property management company to upkeep the property on your behalf. Property managers take both scheduled and emergency repair calls, check up on the property regularly to ensure the tenants respect the place, and can collect rent in your name. Some property managers also offer tenant placement services and eviction processing, usually in exchange for a percentage of your monthly rent. So, hiring a property manager may be an excellent choice if you live far away from the new property or don’t like to handle things like repairs and maintenance.
Also, you need to figure out ways to protect yourself and your property from any legal proceedings. A way to do this is by forming an LLC (Limited Liability Company), as this structure can help you keep your assets safe by offering you limited liability. Rather than hiring a lawyer to handle the establishment process, consider working with an online formation company that handles the job for less money and delivers quicker results.
For an investor, a property can be a stepping stone to financial freedom if handled smartly. If you’re planning on entering the real estate business by purchasing an investment property, consider these tips as they help you get started so you can turn your financial independence dreams into reality.
BD Capital is a private lending company that lends money to those who need a rapid solution to their financial needs. Consider working with the firm to get your finances in order so you can enter the real estate investment market sooner than later.