Investing in real estate is one of the best ways to grow your wealth and diversify your investment portfolio. Unlike the stock market, which can go up and down quite often, real estate is more of a “slow burn” investment that appreciates over the years. And if you buy a property with the intention of renting it out, you can further benefit from your investment by collecting rent from your tenants.
If you’re thinking about purchasing an investment property, here is everything you need to know to get started.
Think About the Type of Property You Want
First, you need to decide what type of property you want to invest in. This means understanding the unique risks and benefits of each type.
For example, buying a condo might be appealing, since most of the building maintenance is covered by condo fees, especially if you are a first-time investor. However, a duplex or multi-unit building could reap more rewards since you will have more tenants, and therefore, more rental income. A house might even be desirable since you could potentially charge a higher rent. However, bigger homes also come with bigger expenses such as property taxes.
Are you ready to become a real estate investor? Learn more about investing with Christensen Real Estate Group here.
Consider the Location
Once you have a good idea of the type of property you wish to invest in, start thinking about the location. While it may vary city-to-city, often the best places to look for investment properties are close to amenities like schools, public transportation, hospitals, or shopping districts. Renters will always consider proximity to these amenities when they are seeking a rental.
Should You Pay in Cash or Finance?
This depends on your unique situation, however, there could be pros and cons to both. If you have the capital to pay for an investment property in cash, then all your rental income will represent positive cash flow and you will be protected in the case of an extended vacancy.
However, financing could also be advantageous. Since you are putting down a much lower initial investment, your annual return on investment (ROI) percentage will be slightly higher than if you put down the full price of the property. However, as mentioned before, real estate investing is a long game and your choices will depend on many factors such as your available capital.
Know the Costs
Investing in real estate is just that–an investment. Unlike investing in the stock market, where you just buy the stocks and watch them appreciate (or depreciate!) It’s not a one-and-done transaction. For some, being a landlord is a full-time job. You will have costs that you need to account for. Including:
- Mortgage payments (if applicable)
- Property taxes
- Utilities (if you choose to include them in the rental price)
- Maintenance fees
- Emergency costs
- Landlord’s insurance
- Administrative costs
- And more…
Should You Hire a Property Manager?
Unless your goal is to become a full-time landlord, chances are you won’t want to be on the receiving end of those 2 a.m. calls when a pipe bursts or the furnace breaks down. Many landlords choose to work with a property manager for these day-to-day landlord-tenant relations.
Although there is a cost involved with working with a property management company, you have to consider that your time also has value. You probably don’t want to spend time chasing down tenants for rent payments, dealing with repairs, or ensuring the terms of your lease are followed.
Interested in learning more about real estate investing? Read more of our blogs about it here:
- Condo vs. Townhouse: Which is the Better Investment?
- 4 Real Estate Investment Strategies to Consider
- Capital Gains and Real Estate: How it Impacts Your Investment
How to Find a Good Tenant
For many landlords, finding a good tenant is one of the hardest parts of renting their investment property. To do this, you’ll need to apply a little marketing knowledge and listen to your instincts. Consider the ideal tenant for your property and advertise to appeal to that target demographic.
Here are a few other ways to find good tenants for your property:
- Develop a process or third-party management company to screen potential tenants
- Always do a credit check
- Always ask for references
- Listen to your instincts if something seems off
How to Leverage Your Real Estate Investment
Once you have your investment property up and running, you can begin to plan for the future and leveraging your investment in other ways. For example, by making improvements or renovations to your property, you can increase the value of your investment, which could lead to higher rents. Additionally, as you pay down your mortgage (if the investment was financed) you build equity that you can then borrow against to fund other investment projects, building your portfolio and growing your wealth exponentially.
Whether it’s your first investment property or you are a seasoned landlord, real estate investment is an exciting and profitable venture. If you’d like some advice on how to get started or how to continue to grow your investment portfolio, reach out to us here.