Investing in property is one of the best things you can do to secure your financial future. Whether you’re flipping rundown houses, investing in residential rentals, or buying a commercial property, it can provide a long-term passive income.
However, not all properties are created equally. Some take a ton of work to prepare for rent or resale. Some yield a massive return on investment, while others do not. The key is taking your time and learning how to find the best property for your needs.
We’re here to help. Keep reading for our top seven tips on buying the best investment property based on your goals, your budget, and your location.
1. Determine Your Budget and Know the Costs
One of the first things to know when buying an investment property is the costs. Obviously, you need to look at the price of the building. However, there are several other costs associated with buying investment properties.
First, you’ll need to invest in property insurance. If you’re renting the property, you’ll also need landlord insurance which provides coverage for property damage, lost rent due to major issues, and liability.
Other property costs include taxes, repairs, renovations, updates, maintenance, and more. If you hire someone else to manage the property, you’ll have to account for that in your budget.
Finally, you need to consider the monthly cost of having a vacant property. If you don’t have a tenant paying rent for a number of months, can you afford the costs of owning the property?
In some cases, property investors have their own private financing. However, in most cases, property investors need to take out loans to purchase a building (commercial or residential).
Property loans require high credit scores. You need to make sure your finances are in order before you put an offer down on a property. We recommend getting pre-approved so you know where you stand before you start property shopping.
2. Identify Your Goals
Once you’ve established your budget and know you can get approved for a loan, you need to assess your goals for buying the best investment property. What kind of property do you want to invest in?
Do you want to buy an old, rundown home, fix it up, and flip it for profit? This will give you a big payoff after just a few months of hard work once you resell the property.
Alternatively, you can buy a home or rental property so you can collect a passive income from tenants each month. There’s no big payoff, but there is a stable, recurring income.
Finally, you can invest in commercial property. Once again, you can either charge business owners rent or flip it after investing in some repairs and renovations.
It all depends on how much money you have to invest, how involved you want to be, and how long you want to be responsible for the property in question.
3. Find the Right Neighborhood
Once you know what kind of investment you want to make, you need to start scoping out the local neighborhoods. Buying the best investment property to rent or resell means finding a neighborhood people want to live in or do business in.
Take a look at crime rates, as well as the average rent charged for your type of property in that specific part of town.
If you’re buying your first home as an investment property to rent out to a family, think about location. What are the attached school districts? Are there any parks and playgrounds nearby?
Finally, assess the real estate and/or rental market in the neighborhood. If there are many properties for sale or a ton of vacancies, you may not be in the right part of town.
4. Determine Your Potential ROI
Buying the best investment property also means making sure you get paid. Assess each potential property to determine how much work you’ll need to put into it to rent or sell it.
What will be the after repair price or the after repair rent? With the cost of the building and the cost of renovations, how much will you need to invest? How long will it take for you to break even?
5. Find an Experienced Commercial Real Estate Agent
If you’re asking yourself “Should I buy an investment property?” your first step is to talk to an experienced commercial realtor. This is especially important if this is your first time buying an investment property.
A commercial real estate agent will have valuable knowledge about the current real estate market, commercial and residential neighborhoods, and more. They’ll also have important connections with lenders, contractors, insurance agencies, and other local business owners who can help you.
6. Learn How to Negotiate With Sellers
In some ways, buying an investment property isn’t altogether different than buying a personal home. Once you find a property you want, you can place an offer and negotiate with the seller.
Here are a few things to keep in mind:
- Come in with a low offer, but not too low
- Remember that you can negotiate other things, such as realtor fees and closing costs
- Based on the condition of the property, you can also request that the seller makes updates or repairs
- Know your price-point and understand the current market
- Don’t appear anxious or desperate to close the deal
Your real estate agent will be a valuable asset when it comes to negotiations. Lean on their expertise to make sure you’re buying the best investment property for the best price.
7. Learn How to Be an Effective and Fair Landlord
Finally, if you’re going to buy an investment property to rent out residentially or commercially, you need to learn the basics of becoming a landlord. There’s a fine line between being lenient and being a push-over.
You need to be strict, but fair. Be compassionate and empathic if someone has trouble paying for rent. However, if it becomes a pattern, you need to put your foot down.
You must also look into your local landlord laws and tenant rights to make sure you’re operating within the confines of the law. What obligations do you have as a landlord? You don’t want to make yourself vulnerable to a lawsuit.
Need Help Buying the Best Investment Property?
Is now a good time to buy an investment property for you? If so, you need to act immediately so you can start building your future.
We want to help. Buying the best investment property for your goals can significantly improve your life and boost your income. Contact us today and let’s work together to find you the right property.